Verity Health System (fka Daughters of Charity Health System) has received a revised outlook from Standard and Poor’s of “stable” from “negative”. This marks a positive step in the turnaround the $1.4 billion dollar distressed system which includes 6 major hospitals located throughout California. In 2014 and 2015 the system reported operating losses of $12.1 million and $59.2 million respectively.
The operators of Verity Health System took control of the faltering entity in 2015 following years of distress and a failed bid from Prime Healthcare in a previous round of offering. A Standard and Poor’s analyst credited the revised outlook to increasingly stable financials, as well as management strength from the new operator Integrity/BlueMountain. Bond ratings remained at CCC.
S&P had downgraded the system in previous years due to a number of major weaknesses including:
- Escalating operating losses;
- Continued weakening of the balance sheet despite substantial debt refunding from a restricted donation made by Daughters of Charity Foundation;
- Eroding unrestricted reserves;
- Heavy reliance on hospital provider fees and disproportionate share hospital (DSH) fees to offset operating losses; and
- Substantially underfunded pension plans, with a 50% funded status based on projected benefit obligations.
Prior to the management takeover by Integrity/BlueMountain there was a wide belief that the system would continue its operational difficulties on a stand-alone basis without intervention. Also of concern were continued operating pressures and the view that the balance sheet offered a very limited cushion to absorb continued losses. New management and recapitalization appears to be having a positive effect.