Revenue hits from COVID-19 have placed a junk-rated Pennsylvania regional health system at risk of another downgrade.
Moody’s Investors Service revised the credit outlook for the Albert Einstein Healthcare Network Tuesday to negative from stable while also affirming its Ba1 rating. The action affects roughly $449 million of rated debt issued through the Montgomery County Industrial Development Authority.
Moody’s analyst Safat Hannan noted that Philadelphia-based Albert Einstein is facing a “significant” revenue decline due to suspending elective procedures indefinitely at the end of March in an effort to prevent further spreads of COVID-19. The health system is slated to receive a large amount of financial support from the Coronavirus Aid, Relief, and. Economic Security Act, but the amount and timing is unknown.
“The negative outlook reflects the likelihood of a continued decline in liquidity, revenue and margins from the significant disruption of services due to COVID-19,” Hannan wrote. “The system's modest liquidity will provide limited flexibility to absorb COVID-19.”
Hannan noted that AEHN has “modest liquidity” that provides limited flexibility to absorb COVID-19 in the 2020 fiscal year amid capital expenditures coupled with timing of pension, debt service and insurance payments. Moody’s
AEHN generated total revenue of $1.3 billion in fiscal 2019. The regional system operates four inpatient facilities in the Philadelphia area including Einstein Medical Center, Moss Rehab, Einstein Medical Center Elkins Park and Einstein Medical Center Montgomery. It also includes a large network of primary care and specialty physician practices.
“The challenges associated with COVID-19 and the unexpected expenses resulting from the pandemic response are creating financial hardship for essential, safety-net hospitals,” AEHN spokesman Damien Woods said in a statement. “Eighty-six percent of Einstein Medical Center Philadelphia’s patients are government pay and low reimbursements have continued to be a significant challenge. We continue to implement strategies to help enhance our financial stability and regain profitability even in the face of these ongoing challenges.”
The health system signed an agreement in September 2018 to merge with Thomas Jefferson University, which Moody’s rates at A2 with a negative outlook. The Federal Trade Commission filed an administrative complaint opposing the merger in February, but both systems remained committed to executing the partnership. Hannan said the rating on Albert Einstein does not factor in the potential merger since there is uncertainly around the timing and likelihood of completing the transaction.
