With one out of every two hospitals expected to show an operating loss in 2022, presentations to the rating agencies in many cases need to focus more on the turnaround plan and less on longer term strategy.

Rating agency presentations traditionally start with the organization’s mission, governance, and leadership and segue into a discussion on the local economy, key service lines, volume and market share trends, and long-term strategies. The last section of the presentation includes information on financial performance, balance sheet metrics, capital needs, and debt structure.

Prior to the pandemic, the strategy discussion would often consume the entire meeting, and a subsequent call to review financial results would follow. This practice was fine as long as performance was stable and largely predictable.

With many organizations now reporting large and seemingly unstoppable financial losses, management teams should consider dedicating most of the presentation to the turnaround plan, rather than longer term strategies. Strategies are important, but for some, right now, finding the bottom line, making covenants, and preserving cash are more important. All members of the C-suite, not just financial leadership, should participate in a robust discussion on the turnaround plan, because everyone has a role in its execution. A summary of long-term strategies can be held at the end of the presentation. In fact, for many organizations, long-term strategies may be as fluid as financial performance, with hospitals taking a more pragmatic view of which services they can provide given workforce issues and narrowing reimbursement.

Consider the following five suggestions:

  1. Schedule a pre-meeting call. The call would discuss all covenants and steps being taken to ensure compliance. Provide a schedule of the covenants within each agreement, when measured, how computed, and the cures and penalties if violated. Update the analysts on any conversations with bondholders and bank lenders regarding waivers, amendments, or forbearance agreements. A pre-call will avoid going down covenant “rabbit-holes” at the meeting so the team can focus on the turnaround.
  2. Express urgency. Include slides that chronicle the immediate levers being pulled to stabilize the losses and stop the cash burn. Whether big or small, levers express urgency and an “all hands-on deck” commitment to the turnaround.
  3. Include waterfalls. A waterfall shows the financial path to achieving next year’s budget by isolating the key drivers that will get the organization from point A to point B. Drivers could include the expected changes in volume, rates, inflation, salaries, contract labor, and supplemental funding, to name a few. Waterfalls provide an informative “how to” for the analysts. I never met a rating committee that didn’t love a waterfall.
  4. Quantify, quantify, quantify. The expected savings from each action step of the turnaround plan should be included, either expressed in an absolute number or in a tight range. For example, if a hospital is looking to reduce its use of contract labor, providing detail around average hourly rates, number of hours utilized, and number of weeks per contract shows command of the problem. Steps to lower the use of agency nurses should be quantified where possible, including the costs to capture the savings. Without the savings quantified, the action steps become mere platitudes.
  5. Describe governance over the plan. Expect questions such as: Who is responsible for the plan’s implementation and oversight? How often do the executive sponsors meet to monitor the plan? What are the deadlines and checkpoints? What is the reporting cycle to the board? Cite examples of mid-course corrections and early wins.

Providing granularity around the financial components of the turnaround plan will allow an organization to control the narrative, rather than leaving it to the analysts to make their own assumptions. The rating analysts will welcome the detail, and the more detail provided, the more confidence the rating analysts will have in the plan. And confidence in your plan, along with your waterfalls, is exactly what you want them taking into rating committee.

Meet the Author
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Lisa Goldstein

Senior Vice President
Lisa Goldstein is a nationally recognized analyst, speaker, writer, and expert on not-for-profit healthcare. At Kaufman Hall, she is a member of the Treasury and Capital Markets practice and Thought Leadership team.
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