Fitch Ratings has downgraded Marshfield (Wis.) Clinic's issuer default rating as well as the ratings on revenue bonds issued by Wisconsin Health and Educational Facilities Authority on behalf of the system to "BBB" from "BBB+."
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.