Catholic Health Initiatives Bond Rating Drops Again.

In late January, Moody’s, a major bond-rating organization, downgraded the long-term debt of Catholic Health Initiatives (CHI) to A2 from A1. This was the third one-notch drop in as many years. According to municipalbonds.com, the downgrade “follows a fourth year of declining operating performance, and a second year of very poor consolidated results.” Other factors reported to have contributed to the weaker credit profile included “high leverage (which has more than doubled since 2011), declining liquidity, rapid expansion, high capital spending, and poor same-store utilization and revenue growth.” A prior negative outlook was maintained. The rating for CHI’s self-liquidity-backed commercial paper remained at P-1, the best rating possible.

If you are like me, these ratings are so much Greek. Above is a graphic from Wikipedia that may help. Certainly a grade of A2 is still within the “Investment-grade category” although no longer at the high-grade level. In terms of a textual description of credit worthiness (again courtesy of Wikipedia): “An obligor has STRONG capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.” Historically, at an A2 rating the risk of default is very low– around 1%. Nonetheless, this is not good news for CHI, coming as it does on the heels of other problems including the announcement of a lay-off of some 1500 employees nationally that has already begun. We do not yet know how Kentucky will be impacted.

As required by law, CHI gave public notice of the downgrade and published a list of 48 [all?] bond issues effected. Eight of these (17%) were issued by Kentucky or Louisville governmental agencies for a total of $674.5 Million. That seems like a lot of money to me. Forty percent of the total Kentucky debt is held in the form of a single Louisville/Jefferson Co. Government Revenue Bond. I do not know what this means for Kentucky taxpayers or Kentucky’s overall ability to issue new bonds for other organizations. I have no idea who is on the hook for any financial consequences of the fall in value of these bonds. Perhaps a savvy investor can fill us in. How can this not be bad news for Kentucky too?

Should anyone be glad?
This series of articles has been following the financial indicators of CHI and KentuckyOne Health (CHI’s subsidiary in KY) as one measure of how its partnership with the University of Louisville is functioning. So far, not so good. Some will likely will accuse me of displaying Schadenfreude– pleasure derived from the misfortune of others. How can anyone derive satisfaction from a situation in which neighbors are losing their jobs, or once strong local institutions brought lower? I will confess to some frustration that my University and community need not have gone down this path in the first place. If there is even a mote of satisfaction to be derived out of this sad situation, it is in confirmation of my opinion that the business model used by CHI and KentuckyOne Health, dependent as it is on public funding to advance a specific religious belief-system, is not sustainable in a modern world of scientific medicine in which the rights of individual humans are respected. I believe this unsustainability will be most evident in places like Louisville where there are other options available.

Not all bad.
In a similar vein, my concerns about CHI and KentuckyOne involvement in the clinical affairs in my medical school and my Commonwealth have nothing to do with the specific religion involved. I once stood next to a very high-ranking University of Louisville officer who was complaining to a Catholic ethicist that those opposing UofL’s proposed partnership with KentuckyOne Health were “anti-Catholic.” (The last defense of a weak argument!) Since it was only the three of us, I am sure the official meant me. I was at least as offended by the implication as the official might have been of my opposition to the University’s plans. There should be no need for me to have to defend myself against charges of religious prejudice, but for the record, both my parents were born Catholic and my closest family is Protestant, Jewish, and Catholic. I even worked in a Catholic hospital once where I took the nuns’ willingness to let a 20 year-old boy do cardiograms on the exposed chests of old ladies as a sign of progressiveness! I still take communion in the Catholic churches of my ancestors and my tongue has never been burned by the Host.

Equal-opportunity separation of church and state.
I can assure my readers that I would have been equally as critical of my University for the abdication of its academic and clinical responsibilities should it have proposed a partnership with Jehovah’s Witnesses in which no blood products would be used, or with Christian Scientists in which prayer alone would be allowed in any of its facilities, or a fundamentalist Christian church that would not permit vaccination against papillomavirus or the treatment of childhood leukemia— or for that matter a Catholic organization that prohibited contraception, fertilization treatment, non-surgical treatment of ectopic pregnancy, therapeutic abortion where the life of the mother was in danger, the voluntary withdrawal of fluids and nutrition at the end of life, or which discriminated against some of its employees on the basis of perceived biblical decrees. In my view, any hospital or health system offering its services to the public that uses its monopoly or its market share to enforce a specific religious doctrine on its patients— especially hospitals that accept public funds or premiums— has no place in the public healthcare marketplace. History will prove the wisdom of this position one way or the other.

Peter Hasselbacher, MD
President, KHPI
Emeritus Professor of Medicine, UofL
February 7, 2015

Addendum Feb 12: I subsequently found a copy of a fuller Moody’s Report. I mistakenly thought a paid subscription was required!