Moody’s Investor Service — an organization that assesses the financial risk of investing in institutions — upgraded Temple University Health System’s credit rating by one level two weeks ago.
The report, released on Oct. 20, said TUHS was upgraded because it had a second consecutive year of being “marginally profitable.” TUHS moved from Ba2, which means that the investment could carry a risk for loss, to Ba1, which tells investors that TUHS’s financial outlook is stable.
“As the Health System’s credit rating improves, it signals to those that purchase the Health System’s bonds that [it] is getting financially stronger and will be in a better position to repay its debt,” said Robert Lux, TUHS’s senior vice president, treasurer and CFO.
“A rise in rating is a signal to the market, the market being everything from the financial markets to our competitors to possible organizations that would want to do business or partner with the health system, that the health system is getting stronger and performing well financially,” said Ken Kaiser, the university’s CFO and treasurer.
He said that banks are now more willing to invest in the health system. The credit rating for TUHS affects the rest of the university, even though the two are technically separate. The rating still affects the rest of the university because the medical school is connected to the health system.
“The university has what’s called a ‘negative outlook’ on our rating and as a result of this rating, we will be asking Moody’s to reexamine Temple’s rating,” Kaiser said.
Temple has had a negative outlook from Moody’s because of TUHS’s “weak operations and marketing challenges” as well as the budget impasse that worried administrators throughout the 2015-16 academic year.
“The support TUHS receives from the Commonwealth is proportionate to aid for providing charity health care,” Kaiser said. “That won’t change, no matter what.”
Moody’s most recent report said funding from the state of Pennsylvania, the large size of the clinical health system and the close working relationship with the university were the reasons for the upgrade.
The plans that were put in place over the past several years to improve the financial rating are being expanded upon, Kaiser said.
“The cornerstone of the plan was, and is, hiring top-flight physicians who bring very complex and high-acuity practice,” Kaiser said. “In other words, if you go to the doctor and you have a cold or you broke your arm, that’s pretty routine. Acuity is a measure of the complexity of the case, so to speak. If you look at a heart transplant or something like that, that increases the profile of your health system. The cases are very complex and it shores up the finances.”
According to Moody’s report, “the stable rating reflects an expectation of continued positive operations.”
“Working very closely with the Lewis Katz School of Medicine, Temple Health has clinically strengthened a number of high-profile clinical programs, like cardiac services and oncology,” Lux said. “As a result of these investments, the Health System has seen growth in patient volumes and enhanced revenues. Along with that, expense control and continued support from the Commonwealth have allowed us to earn a modest profit.”
Amanda Lien can be reached at firstname.lastname@example.org or on Twitter @amandajlien.