Analysts at one of Wall Street’s biggest debt rating agencies say Quorum Health’s plan to generate millions from a new revenue cycle management contract are critical to avoiding a downgrade next year and have lowered their outlook for the hospital operator to ‘negative’ from ‘stable.’
Moody’s Investors Service researchers this week said they were affirming the debt ratings of Brentwood-based Quorum and that they expect the company’s profitability to improve in the coming year. Their addendum to that thought, however, is that the company sorely needs to hit its goals of shedding more unprofitable hospitals and of bringing in much-needed cash from a new billing and collection deal with R1 RCM.
“The magnitude of earnings improvement will be highly contingent on the successful execution of both divestiture efforts and plans to augment its revenue cycle management,” the Moody’s analysts wrote. “The change in Quorum’s outlook to negative reflects the high execution risk associated with these plans and rising refinancing risk if these initiatives do not begin to take hold over the next six to nine months.”
This spring, Quorum CEO Bob Fish and his team said they expect their R1 deal — which is taking the place of an agreement with former owner Community Health Systems that landed the parties in court — to quickly save about $5 million in costs and bring in $5 million of extra revenues before the end of this year. By 2021, those gains are expected to grow to $50 million annually.
That would give Quorum a big boost as it nears daunting debt deadlines. The company, which was spun out of CHS with 38 hospitals and now runs 26 hospitals in 14 states, finished June with more than $1.2 billion of long-term debt on its books. Of that, a term loan with a balance of $778 million — down from $831 million at the beginning of last year — will mature in April 2022 and $400 million of senior notes are scheduled to mature about a year later. The term loan has an interest rate of nearly 10 percent, the notes more than 11 percent.