Fitch downgrades Butler Health System’s credit rating 3rd time this year
For the third time in 2023, credit rating agency Fitch Ratings has downgraded its outlook on Butler Health System.
On Monday, Dec. 11, Fitch Ratings downgraded Butler Health System’s bonds by one notch, from BBB to BBB-, and moved it from “Rating Watch Negative” to “Rating Outlook Negative.”
In its commentary on the downgrade, Fitch cited “a deepening operating deficit through FY23 ... and a weaker-than-budgeted operating loss through Q1 FY24.”
In late November, Butler Health System released its financial results for the first fiscal quarter of 2024, which ended Sept. 30, 2023. The results showed an operating loss of $12.97 million over a three-month period. Over that same three-month period in 2022, BHS had an operating loss of over $1.6 million.
Butler Health System merged with Westmoreland County-based Excela Health this year, with the two combining to form the Independence Health System. However, both entities are still keeping separate financial records.
The Butler Health System portion of the merged entity consists of Butler Memorial Hospital and Clarion Hospital, along with other entities such as urgent care centers, retail pharmacies, and a 51% stake in the Butler Ambulatory Surgery Center.
Officials from Butler Health System have blamed the increasing losses, at least in part, on stagnant reimbursement rates from health insurance providers, which have not been enough to offset ever-increasing operating costs and inflationary pressures.
Fitch’s report also cites ever-increasing competition from other hospital networks in Western Pennsylvania, such as UPMC and Allegheny Health Network systems.
“Clearly, we are disappointed with the development, but not surprised,” said Tom Albanesi, CFO of Independence Health System. “The rating remains investment grade. We remain committed to our financial improvement plan and rating upgrades will follow.”
Earlier this year, Truist Bank waived a debt service covenant with BHS which was breached. If BHS fails to reach a similar waiver agreement with bondholders, it could go into default.
In a presentation to bondholders, Butler Health System outlined a series of steps they would take to reduce costs in future quarters. This was part of a financial improvement plan concocted by Washington D.C.-based FTI Consulting.
In total, FTI and Butler Health System identified enough cost-saving opportunities to save an estimated $33.7 million over the 2024 fiscal year.
“BHS continues to face operating challenges, including significant labor cost inflation,” wrote Fitch. “Addressing reimbursement pressures given significant cost inflation over the past two years is a key strategy.”
Fitch downgraded Butler Health System’s bonds from “A“ to ”BBB“ on June 26. Four months earlier, Fitch first put BHS under ”Rating Watch Negative.“
Last week, Butler Health System revealed it is shifting some heart care services to a private practice based in Weirton, W.Va. This change, which takes effect on Jan. 1, will impact roughly 2,500 patients and four BHS nurses, all of whom reportedly have new jobs lined up.
