EHR Installations Can Damage Your Credit Rating
By Katie Wike, contributing writer
Costs of EHR implementations and large IT projects may damage credit ratings by tying up cash and temporarily reducing profits
Hospitals undergoing health IT installations are at risk of damaging their credit rating. Becker’s Hospital Review reports Standard & Poor's Ratings Services (S&P) downgraded the credit rating of Wake Forest Baptist Medical Center from "AA-" to "A+". The article explains, “Wake Forest Baptist officials attributed the downgrade almost entirely to costs associated with the troubled rollout of its Epic electronic health record system. In fact, the project played a major role in the academic medical center posting a $56.6 million operating loss in the most recent fiscal year.”
"The ratings change was largely due to the one-time implementation costs and temporary business disruption associated with the installation of a new medical records system at the medical center in the fall of 2012," Edward Chadwick, executive vice president for finance and CFO of Wake Forest Baptist, said in a statement. "The operating impact was greater than anticipated and affected overall fiscal performance for fiscal year 2013."
According to FierceHealthFinance, S&P had reported earlier “some small, nonprofit hospitals were having financial difficulty because of EHR expenses, decreased volume and physician turnover,” referring to a sampling of 80 hospitals found credit ratings were downgraded for nine percent of small hospitals versus six percent of all stand-alone hospitals.”
All is not lost, however, as FierceHealthFinance writes, “The financial challenges are not insurmountable and most hospitals should recover fairly quickly. The biggest problems occur when EHR implementations cost more than expected, driving up accounts receivable, or if costs strangle a hospital's cash flow, Jim LeBuhn, director of the nonprofit hospital group for Fitch Ratings, told the publication.
“Hospital finance managers can minimize the negative impact by communicating expected financial challenges related to EHR implementation, LeBuhn said. ‘From our standpoint, when a problem does arise, communicate that to us,’ he told Becker's. ‘We understand these are not easy installs.’”
Becker’s affirms Fierce’s assertion that these ratings changes are “just more of an extended hiccup,” writing of the aforementioned Wake Forest change, “S&P analysts said they expect the hospital's operating results will ‘rebound measurably in fiscal 2014 as management's corrective actions demonstrate results and the disruptive effect of the IT rollout diminishes.’”
Kevin Holloran, a director in S&P's nonprofit healthcare group, said health IT is “ramped up on steroids” citing the fact that it used to encompass 5 to 10 percent of a hospital's capital project budget, but now that range is anywhere from 25 to 35 percent.
“Health IT and EHRs are not inherently negative credit risks, but they can be if something goes awry, similar to what happened at Wake Forest Baptist. If an EHR costs more than expected, causes accounts receivable to balloon or severely cuts into a hospital's cash flow or operations, that's when it could hurt a hospital's credit profile,” says the Becker’s Hospital Review article.
This data is no cause to change plans for EHR implementation though, in fact, it’s essential for keeping up with other organizations. Installation may come at a price now, but it will pay off at the end. "Without data to figure out what that particular care protocol is or treatment procedure is, you simply won't be able to do it how others will," Holloran says.
Want to publish your opinion?