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Credit agencies see more risk for Northern Light Health after it lost $130M last year

Linda Coan O'Kresik
Bangor Daily News

Two credit rating agencies have just lowered their assessments of one of Maine's biggest health care organizations, Northern Light Health, after it ended last year with an operating loss of more than $100 million because of a variety of staffing and operating challenges.

Those challenges aren’t unique to Northern Light, which includes the flagship Northern Light Eastern Maine Medical Center in Bangor and nine other hospitals around the state. But it’s not clear whether any other Maine hospitals were hit nearly as hard.

The pandemic has been a roller coaster for most hospitals around the country. Early on, they lost lots of money as they handled growing waves of sick patients and worked to vaccinate the population.

An influx of federal funds helped get them through 2021, but new challenges emerged last year. Revenue dropped off for various reasons, even as inflation drove up the cost of goods and labor. One of the steepest cost increases has been hiring outside nursing agencies to plug staffing gaps, according to Jeffrey Austin with the Maine Hospital Association.

As a result, Maine's two biggest hospital groups both finished in the red during the 2022 fiscal year, according to financial figures they have released. Northern Light’s operating loss totaled $131.7 million, and Portland-based MaineHealth reported a lesser loss of nearly $45 million. Both groups ended the previous year with positive margins.

Now, two credit agencies, Moody's and S&P Global, have affirmed their previous ratings for Northern Light, but lowered to negative the outlook for it to improve its finances.

The rating from S&P, BBB, means that it has enough capacity to meet its financial commitments, but that adverse or changing conditions could threaten that ability. The rating from Moody’s, Ba1, means it has substantial credit risk.

Among other things, the new outlook means Northern Light could have to pay more interest on future debt and could see a further downgrade if it doesn’t make more improvements in the coming year. It also had to hire a consulting firm, Kaufman Hall, to help guide its improvement efforts after it breached a debt service coverage covenant set by its lenders.

In a written statement, Northern Light spokesperson Suzanne Spruce pointed to several efforts that kept its credit rating from dropping further and could eventually help bring it out of the red. That includes ongoing recruitment of clinical staff and the recent decisions to outsource many laboratory and administrative functions to two companies, Quest Diagnostics and Optum.

“At a time when many healthcare organizations are being downgraded, Northern Light Health is very pleased that both Standard and Poor’s and Moody’s affirmed our current ratings and revised the outlook to negative,” Spruce said. “We appreciate that both rating agencies noted Northern Light Health made bold moves to help recover from the losses sustained during the ongoing COVID-19 pandemic.”

Spruce also noted that Northern Light has prepared a 2023 budget that, if met, will help it avoid further breach of its debt covenant.

It’s not clear whether any other Maine hospitals fared as poorly as Northern Light last year. A smaller health system, the Augusta-based MaineGeneral Health, ended in the black last year, posting an operating gain of $5.5 million, according to spokesperson Joy McKenna.

A spokesperson for Central Maine Healthcare in Lewiston didn’t immediately provide financial figures for the 2022 fiscal year.