Moody’s downgraded Portland, Ore.-based Legacy Health’s rating to “A2” from “A1.”
The downgrade comes after the termination of Legacy Health’s proposed merger with Portland-based Oregon Health & Science University in May.
In the days following the termination, Moody’s placed Legacy’s ratings under review, focusing on the system’s “path forward as it repositions itself to remain an independent organization.”
Moody’s said in an Aug. 28 report that the downgrade reflects “persistently weak operating performance that, while improving, will remain well below industry averages at least through fiscal 2027, which may lead to lower liquidity and ongoing weak operating leverage.”
Legacy has a negative outlook at its new rating, Moody’s said.
Moody’s said that despite operating improvements that are beginning to find traction, operating challenges will persist, driven by high labor rates, expense inflation and unfavorable state legislation.
The ratings agency said the eight-hospital system will continue to benefit from a strong market position. Legacy has a good market share in the consolidated Portland market; good organizational size and footprint; a strong network of clinics and relationships; and strong clinical offerings.
Legacy Health told Becker’s in a statement that while it was disappointed in Moody’s decision to downgrade the rating, “we are not surprised.”
“The external environment remains highly complex for all healthcare organizations, particularly in Oregon and Washington,” the statement said. “Many of the contributing factors identified for the downgrade are out of our control (state laws, uncertainty around coming changes, labor increases, etc.), but we remain focused on increasing operational efficiency and being financially responsible.
“We continue to make operational improvements as well as difficult decisions including ongoing evaluation of our services, programs and staffing. We have recently eliminated approximately 70 (full time employees) which include 40 layoffs and 30 open positions that will not be filled across all levels of the organization. Legacy carries a disproportionate share of uncompensated care and Medicaid. The reality is that until reimbursement structures better reflect the true cost of care, no amount of internal effort alone will be enough to sustain long-term financial stability. “
