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June 29, 2023

FY 2023 Hospital Sector Annual Review

At the Board of Directors Meeting held on May 17th, Staff presented its annual review of the Authority’s Hospital portfolio, which included financial operating results for FY 2022, key utilization metrics and bond issue activity trends since FY 2019.

The financial operating performance review was based on six stand-alone hospitals (including the Parent and subsidiaries) as well as the four in-state and multi-state health care systems (collectively the “Institutions”), which includes 17 hospital facilities. Utilization trends were based on 23 hospitals on an individual basis that comprise the hospital sector portfolio, consisting of 32 bond series with approximately $2.33 billion outstanding.

Acquisitions & Affiliations: In February 2022 Yale New Haven Health Services signed an agreement to acquire three hospitals (Rockville, Manchester Memorial and Waterbury Health) from Prospect Medical Holdings and is currently waiting for final regulatory review and approval. In March 2023, Covenant Health withdrew its certificate of need application to affiliate with Day Kimball Hospital.

Rating Agency Outlook: Moody’s overall outlook of the not-for-profit healthcare sector for 2023 (issued on Dec 7, 2022) remains negative as difficult operating conditions continue through labor shortages, high inflation, supply chain issues and only modest revenue increases. Fully repaid Medicare advances in 2022 also contributed to a reduction in cash reserves. Hospitals with weaker cash cushions or exceptionally large operating losses will face increased risk of covenant failures and may need to liquidate investments to boost debt service coverage or draw on lines of credit to temporarily increase cash.

Utilization: FY 2022 utilization has trended favorably among total patient days (up 0.8%), ambulatory surgeries (up 4.2%) and emergency room visits (up 11.1%) for the majority of the hospitals within CHEFA’s portfolio from FY 2021, but overall, continues to lag pre-pandemic levels within some areas.

Operating Performance: FY 2022 operating results were mostly unfavorable with five of the ten Institutions experiencing a negative operating margin, averaging -2.3%. The portfolio operating margin median declined from 2.6% in FY 2021 to 0.2% in FY 2022 and is at its lowest level over the past five years. The operating margin median calculated on the 23 hospitals individually (excluding the Parent and subsidiaries), compared favorably to Moody’s preliminary 2022 Median. The operating cash flow margin median also declined from the prior year (from 7.7% to 5.8%). The FY 2022 debt service coverage ratio median decreased from its high of 5.3 times in FY 2021 to 2.3 times in FY 2022 and is at its lowest level over the past five years with four Institutions having less than 2.0 times coverage.

Liquidity: Mostly attributable to unfavorable market performance in FY 2022, the days cash on hand median of 136.8 days decreased from 178.4 days from the prior year and is at its lowest level over the past five years. The range varied among the Institutions (from 41.9 days to 317.0 days) with only one Institution surpassing Moody’s overall Median of 210.4 days. The cash-to-debt median in FY 2022 declined from its five-year high of 191.1% in FY 2021 to 155.9% in FY 2022 with eight of the ten Institutions reporting a decline from the prior year.

Capital Investment: Despite the increased cost of capital and inflation, total aggregate capital spending increased 11.5% from FY 2021 to FY 2022, and the median increased 55.2% from the prior year. While total capital spending of $672.0 million is at its second highest level over the past five years, it still significantly lags its high of $831.8 million from FY 2020. A substantial disproportion in capital spending exists among the hospitals based on the size and financial strength of the Institution. Average age of plant increased from the prior year and remains high at 14.1 years compared to Moody’s overall median of 12.3 years.

To learn more about the CHEFA Hospital Sector report for FY 2022 and the performance of 23 hospital facilities that make up our hospital portfolio, please contact Michael Morris, Managing Director at