Bonds

Denver Health’s BBB ratings affirmed amid migrant crisis

Rating agencies affirmed Denver Health and Hospital Authority (DHHA) bonds at BBB with stable outlooks, citing improved operating performance.

The affirmations came in the wake of concerns raised last month by the public safety net health system that an influx of migrants from the southern border was contributing to escalating uncompensated care costs.

Denver Health said the affirmation of BBB bond ratings and stable outlooks from Fitch Ratings and S&P Global Ratings reflects hard work by the safety net healthcare system to improve its bottom line and financial position.

Denver Health

Fitch Ratings said Tuesday while the system remains challenged by “a constrained payor mix, comparatively high levels of uncompensated care, and operating expense pressure,” its operating margin improved in fiscal 2023.

“Fitch expects that the operating EBITDA (earnings before interest, taxes, depreciation, and amortization) margin will continue to improve and stabilized to the 6.5% to 7.5% range within the next two years, supported by DHHA’s robust volumes and the expansion of specific higher margin services,” the rating agency said in a report.

In a Jan. 31 report, S&P Global Ratings also pointed to a positive trend in Denver Health’s operating margin, which was negative-2.5% in fiscal 2022.

“Through 10 months of fiscal 2023, operations improved to be in line with expectations at break-even, due to volume increases, improved reimbursement rates, work on the revenue cycle, and materially decreased reliance on contract labor following solid recruitment efforts throughout the year,” the report said.

DHHA said the rating affirmations reflect its hard work to improve its bottom line and strengthen its financial position. 

“While we are proud of this rating, Denver Health continues to face financial challenges due to rising uncompensated care costs,” a statement from DHHA said. “Ongoing local and state support is needed to address these costs so we can continue improving our financial position and continue providing everyone in Denver access to high quality health care regardless of their ability to pay.”

In January, DHHA CEO Donna Lynne, told a Denver City Council committee the lack of reimbursement for treating 8,000 migrants in 20,000 visits was driving the system to the breaking point as the situation was not anticipated when it negotiated a 2024 operating agreement with the city. 

Under that agreement, the city will pay Denver Health $73 million in fiscal 2024 to cover patient care and services. That amount was up from $69 million in fiscal 2023.

A presentation to the committee by the health system’s consultant Ernst & Young showed uncompensated care costs have risen from $59 million in 2020 to $120 million in 2022 and were projected to hit $135 million in 2023. 

Denver Health’s essentiality as Colorado’s sole public safety net healthcare provider and the city’s use of voter-approved general obligation bond financing for some DHHA projects were noted by the rating agencies. The health system, which was split off from the city and county of Denver in 1997, last sold its own revenue bonds in 2019 to refund some outstanding debt and to pay for a portion of an outpatient clinic. It has about $300 million of bonds outstanding.

“The rating reflects our view of DHHA’s solid market position as an integrated health care delivery system and essential public provider of health care and community services for the Denver metro area,” S&P said. “As one of the region’s only Level 1 trauma service providers and an emergency medical transport operator, DHHA holds a firm market position in the competitive area.”

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