Standard and Poor’s Revises Ballad Health Outlook to “Positive”, Affirming “A-” Rating

Despite industry-wide pressures leading to credit downgrades outpacing upgrades, S&P’s positive revision cites Ballad Health’s experienced management team, execution of integration strategy, and quality improvement serving to “transform Ballad Health into a high-performing consolidated system”

Observing that Ballad Health has “successfully executed its integration strategy and realized synergies, despite the disruption caused by recent industry pressures,” Standard and Poor’s (“S&P”) has revised Ballad Health’s credit outlook from “Stable” to “Positive”, and affirmed its “A-“ rating, affecting Ballad Health’s series of debt instruments.  

Citing that Ballad Health “has a somewhat high reliance on special funding and a high reliance on governmental payers”, S&P stated that it believes the health care industry sector “remains exposed to elevated labor costs, which has led to weaker operations” across the sector. This has led to more than 90 health system downgrades in 2024 among the three major rating agencies, with only 37 upgrades, according to publicly available information.  

Despite these headwinds, S&P stated that Ballad Health has a “steady leadership team that has focused on integration and execution,” and has “responded well to industry challenges and taken a proactive approach to the merger that includes developing a strong strategic vision, setting explicit financial and nonfinancial goals, aligning executive and functional leadership, integrating cultures, and leveraging integration best practices.”

“Furthermore, we believe management is making some difficult decisions around the need to consolidate services across the system, and to improve quality and performance, while maintaining access across the region,” added S&P in their report.

S&P noted that, Ballad Health has benefitted due to its high mix of lower income patients through the Tennessee Hospital Improvement Program, which for the first time in 20 years, led to an increase in state and federal payments for patients covered by the Medicaid program. However, S&P also cites that some of this special funding provided through the Hospital Improvement Program is at risk due to federal funding changes contained in recent federal legislation. Despite this and other industry pressures on labor and inflationary supply costs, S&P stated “we expect that there could be some changes in special funding but believe management’s focused performance improvement initiatives will partially offset any decreases.”

Ballad Health continues to work with state and federal leaders to find solutions to ensure proper payments for patients with lower income and no access to commercial insurance coverage, given its disproportionate reliance on government payment programs for lower income patients.  

“It is our hope that we can find positive solutions that help us avoid reductions in services or access to care in our region, which would be likely in the event of major cuts to these programs that are intended to reimburse providers for caring for lower income patients who cannot afford to pay for care,” said Ballad Health Chairman and Chief Executive Officer Alan Levine.

It has been widely reported that hundreds of U.S. hospitals, especially rural ones, have been cutting services, reducing staff or closing departments in 2024/2025 due to financial strain from rising costs, staffing shortages and potential federal funding cuts. A recent report by the Center for Healthcare Quality and Payment Reform stated that a third of U.S. hospitals are currently at risk of closing due to serious financial concerns, and that “action is needed immediately to prevent more rural hospital closures.” The report states that nearly 760 rural hospitals are at risk of closure.

“The vision behind the creation of Ballad Health was that we could use the financial strength of a few of our hospitals to help sustain the other hospitals throughout the region,” said Levine.  “What the experts are now saying is that this vision, properly executed, has helped Ballad Health navigate through these significant industry challenges without seeing mass closures of hospitals. In fact, we have reopened a previously closed hospital, and we now have documented evidence that lives were saved due to these decisions.”

“S&P rightly acknowledges that Ballad Health’s leadership has made some very difficult decisions which led to criticism by some,” said Dr. Brian Dawson, a practicing emergency medicine physician in Johnson City and chair of the Ballad Health Board of Director’s Population Health Committee. “However, the objective, peer reviewed data now shows that these decisions actually improved quality, reduced patient deaths from trauma, led to the newest NICU with the most up-to-date technology in Tennessee or Virginia, and kept our health system on a solid financial footing.”  

“As Ballad Health has emerged from the difficulties imposed by the historic labor shortages and inflationary pressure, it does so while investing heavily in its labor force and in technology,” said Dr. Marta Wayt, a practicing primary care physician in Kingsport and chair of the Ballad Health Board of Director’s Quality, Service and Safety Committee. “Ballad Health has instituted three major wage increases for nursing since 2019, with the most recent increase leading to nearly double the hourly wage compared to 2019, and has opened three new early learning centers for children of its team members with nine total centers serving the population, and plans for expansion of existing centers soon. These improvements have led to a current nursing turnover of below 12%, something not seen in our region in more than 20 years.”

Wayt added, “In addition to investing an annual amount of more than $150 million to support higher wages and benefits due to the labor shortages, Ballad Health has also invested nearly $400 million in capital improvements just since 2022, with an additional $144 million planned for the current fiscal year. Making these investments while remaining strong financially is not easy, as evidenced by the massive number of health systems having been downgraded, while at the same time, Ballad Health is seeing a positive revision to its outlook.”  

Ballad Health’s recent capital investments include:

• Conversion to a fully robotic pharmaceutical distribution system, leading to a virtual elimination of medication errors, and an increased amount of time spent at the bedside for pharmacists
• Expansion of the newest robotic surgical technology to its hospitals, including adding robotic surgery to hospitals that previously did not have it available
• A full replacement of cancer treatment technology, with new linear accelerators already beginning to be installed in its hospitals – the first one already operational in Greeneville, Tenn.
• New leading edge cardiac and pulmonary diagnostic technology
• Completion of a 20-bed inpatient addition to Franklin Woods Community Hospital in Johnson City, Tenn.
• Completion of a nearly $60 million two-story expansion of Niswonger Children’s Hospital with the newest Neonatal Intensive Care Unit (NICU) in Virginia or Tennessee with all private rooms and advanced technology
• Announcement of a new $60 million emergency department and trauma center at Johnson City Medical Center
• A completely renovated Women’s and Children’s labor and delivery unit at Indian Path Community Hospital in Kingsport, Tenn.
• Expansion of the Cancer/Infusion program in Kingsport, Tenn.

Improved technology and record low nursing turnover are not the only result of the successful integration of Ballad Health. Also seeing significant outperformance is Ballad Health’s success in recruiting and retaining physicians during a period of major national, worsening physician shortages. A recent independent study by PYA concluded that Ballad Health, as a rural health system, has outperformed the rest of the nation in eight of 12 specialties in sustaining physician supply.  

“We have 12,000 people who come to work every day focused on our mission of honoring those we serve by delivering the best possible care,” added Levine. “These are not just words.  It is what motivates each of us. The rating reports are important because they are independent assessments of our system’s creditworthiness. This is not just a financial analysis. It’s a wholesome review of whether Ballad Health is likely to succeed and whether it can deliver on its mission. Quality, technology, a serious plan and the governance and team to execute on it, are all relevant measures of a health system’s likelihood of sustainability and ability to thrive. It is clear that, in what is the most challenging time for healthcare systems and hospitals in decades, S&P has seen what they need to see to signal that Ballad Health, and our region, remain a worthy investment likely to succeed.”

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