November 7, 2024

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Labor grumbles as Minneapolis hospital chain navigates downgrades

4 min read
Labor grumbles as Minneapolis hospital chain navigates downgrades

Months after Minnesota’s second-largest healthcare employer was downgraded by two rating agencies, the Minnesota Nurses Association is taking aim at the management of Minneapolis-based Allina Health and arguing that Allina’s board should be composed of “largely bedside workers.”

The union, which represents 22,000 nurses across Minnesota, Wisconsin, North Dakota and Iowa, to EMMA, said its capital plans include a new $1.2 billion 10-story patient care building at its flagship Abbott Northwestern Hospital, a new transportation hub for the facility and a $149 million upgrade to the its central utility plant.

Allina’s most recent downgrades came earlier this year. On April 17, Fitch downgraded the system’s long-term issuer default rating and long-term ratings on outstanding revenue bonds to A-plus from AA-minus. On Feb. 8, S&P Global Ratings downgraded the system’s taxable bonds, and its long-term rating on bonds issued by various authorities for Allina, to A-plus from AA-minus. 

“Management continues to address the rise in the expense base and was able to stem a much larger operational loss in fiscal 2023,” Fitch noted in its rating report. “Fitch expects that the operational improvement will continue over the outlook period; however, balance sheet metrics are expected to improve over a longer period.”

According to an event notice posted to EMMA, Allina stopped paying Moody’s Ratings to rate its debt in August 2023. A Moody’s spokesperson said Moody’s continues to rate the health system.

In an April 2023 credit opinion, Moody’s said its A1 rating of Allina’s revenue bonds reflects the system’s favorable market position. The outlook is stable.

While the nurses union questions an “agenda” of “cutting labor costs, closing ‘underperforming’ service lines, hospitals, and clinics, and pursuing mergers and acquisitions,” bond rating agencies don’t see Allina going over a financial cliff. 

“Management implemented strategic initiatives and hired a consultant to help grow revenues and stem the rising expense base. With these moves, Allina was able to end fiscal 2023 on a positive trend,” Fitch said. “Fitch expects that Allina will be able to execute on more strategic initiatives going forward.”

The nurses also critique Allina’s “growing appetite for spending hospital dollars on expensive contract labor.” But the use of contract labor has been an industry-wide trend during the pandemic and post-pandemic era, as “unprecedented” numbers of full-time nurses left the profession, according to the National Council of State Boards of Nursing, and hospitals across North America faced labor shortages. 

Mark Pascaris, analytic lead of nonprofit healthcare at Fitch, said Allina’s use of contract labor was nothing out of the ordinary for the sector. 

“Industry-wide, almost every hospital and health system that we rate, really almost without exception, there’s been a pronounced increase in labor wage pressure,” he said. “Really as we started to come out of the pandemic, it really started to hit in late 2021 and it accelerated into 2022, and as a result, the use rate and the cost rate of contract labor really exploded, particularly in 2022. And then towards the end of 2023 and now into 2024, we’ve started to see those trends moderate.” 

In a December 2023 report, Fitch said the key to operational success will be nonprofit healthcare providers’ ability to attract and retain full-time staff going forward.

The nurses union further took issue with a joint venture between Allina and Flare that emphasizes nursing-at-home programs. Suzie Desai, director and sector lead of nonprofit healthcare at S&P, said “everyone knows” there’s a shift that’s happening around length of hospital stays.

“Generally, across the sector, we’re seeing the shifts from inpatient to outpatient and the shifts to home [care], so a lot of times, organizations will joint venture because it’s maybe not in their full wheelhouse or they don’t have the expertise or some other organization can help contribute to that growth,” she said. “So that is something that a lot of providers are doing — we’ll see urgent care, we’ll see hospital-at-home, we’ll see some of those things where you joint venture to help manage that shift in volume that’s happening.” 

The rating agencies seemed to agree with the nurses on one thing: they praised Allina’s transition away from policies like denying care to anyone with a certain level of outstanding medical bills. 

“We view favorably Allina’s continued execution of Allina’s strategy to pursue growth opportunities and build on the system’s large clinically integrated network, to shift Allina toward value-based reimbursement in a measured way, and to be more consumer-oriented across the system,” S&P noted in its rating report. “We believe these investments, along with the completion of the organization’s ongoing capital project, should help Allina remain one of the market leaders in the greater Minneapolis-St. Paul region.”