Ascension to rebound from $3B loss, negative outlooks

St. Louis-based Ascension is focused on rebounding from a $3 billion operating loss (-5.6 percent operating margin) in fiscal year 2023 amid negative outlooks from two ratings agencies. 

Fitch Ratings recently lowered Ascension’s outlook from stable to negative while S&P Global Ratings affirmed its negative outlook for the health system. 

Despite "real progress" to resume a more typical level of operations through significant and durable cost savings initiatives, Ascension saw a new set of operational challenges in FY 2023, Fitch said in a Sept. 26 report. The system hit its 2022 operational goals largely through improved efficiencies and contract labor and productivity initiatives, but additional challenges continued to hinder operations in FY 2023.

One caveat on the $3 billion operating loss is that it included a one-time, non-cash impairment loss of $1.5 billion as the carrying value of certain assets within Ascension's markets may not be fully recoverable, according to the health system. When normalized to exclude one-time items, Ascension’s operating loss for FY 2023 was $1.39 billion (-4.9 percent margin) compared to a $1.17 billion loss (-4.2 percent margin) in FY 2022. 

"The after effects of the COVID-19 pandemic, continued healthcare worker staffing shortages, ongoing supply chain challenges and persistent inflation were headwinds we faced throughout the last fiscal year," CFO Liz Foshage said. "As we look forward to the next fiscal year many of these headwinds remain, but our team is prepared to adapt to this new normal and chart a path back to operational stability." 

Fitch anticipates that Ascension will rebound to generate a "consistent operating margin" of about 3 percent with operating EBIDA margins rising to between 4.5 percent and 8 percent over the next two years given current industry headwinds and the magnitude of the turnaround. 

To bolster its margins, Ascension is reorganizing its portfolio, improving acute care assets focused on patients with more complex needs and driving growth through its ancillary services and ambulatory networks. The system said it is also investing more money into ASCs, imaging and physical therapy sites that advance its footprint of service offerings and provide greater convenience to consumers.

Several leadership changes have been made to help achieve this. Ascension has tapped seven new strategy leaders across the organization, according to October LinkedIn posts from Chief Strategy Officer Amber Sims. The faith-based system also created the new role of president and appointed new ministry market executives for its Wisconsin, Illinois and Michigan markets, among other executive moves.

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