Marshfield's Cerner install led to revenue cycle issues, ratings downgrade

Marshfield (Wis.) Clinic Health System's IT standardization efforts over the last few years disrupted operations and were a contributing factor in Fitch's decision to issue a ratings downgrade from an "A-" to "BBB+" rating.

The health system began implementing Cerner's platform in 2020 and aims to finish the install in the first quarter of this year. The switch has come with some growing pains, especially with revenue cycle operations.

"The IT implementation has negatively affected the system's revenue cycle, with aging receivables, throughput errors and lower collections, which is being addressed with ongoing training, process revisions and technical remediation," the report states. "Further, the IT implementation has caused an unexpected level of productivity disruption, which has affected top line revenue and resulted in additional operational costs to support the activations."

Marshfield had multiple legacy systems to convert to Cerner, which further complicated the install.

"While Fitch believes that MCHS's highly integrated and broad franchise and significant service area distribution enhances the issuer's capacity to meet its financial obligations, the current environment of constrained cash flow in conjunction with revenue cycle disruption from the IT implementation has resulted in liquidity distress," Fitch noted.

The ratings agency expects Marshfield Clinic's operating challenges to continue at least through the first half of this year as the system finishes installing its new IT platform. When the IT challenges are fixed, the system's provider productivity will likely improve and Fitch sees meaningful cost savings through 2024 as a result of the switch.

Fitch anticipates operating EBITDA margins will stabilize 6.5 percent to 7 percent by 2025, according to the report. The health system reported an operating EBITDA margin of -0.9 percent and operating loss of $179 million last year.

Fitch also cited labor and wage pressures as a reason for the operational challenges and ratings downgrade.

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