The downgrade reflects operational challenges tied to expenses that have not adequately flexed to variable revenues as Marshfield continues to integrate following a period of high growth, and higher than budgeted medical loss ratios at the health plan, Fitch said in a Jan. 17 report.
The rating comes shortly after Marshfield announced that it is furloughing 3% of its workforce — about 360 employees, including some in leadership roles — to help hit its financial turnaround goals. Earlier this month, Marshfield and Duluth, Minn.-based Essentia Health also called off their proposed plan to merge into a 25-hospital system.
Fitch projects operating challenges to continue into the first half of fiscal 2024 (year-end Dec. 31) and start to moderate as the improvement plan — including over $250 million in immediate efficiencies — is implemented. The ratings agency believes operating EBITDA margins will stabilize around 6.5% to 7% by 2025.
While the 11-hospital system’s financial profile has taken a hit amid operating losses and market volatility, Fitch said there is an adequate financial cushion for the rating given the mid-range revenue defensibility and operating risk assessment.
