Ballad Health Announces Fourth-Quarter and Year-End Results

Reports national top-decile quality measures; lower cost for patients, employers and taxpayers

Improved patient satisfaction; and state findings of public benefit against backdrop of material financial impact of COVID-19 pandemic

Ballad Health today announced fourth-quarter and year-end results from its 2020 fiscal year.

Excluding the impact of coronavirus disease 2019 (COVID-19), the results demonstrate significant reductions in the cost of healthcare for employers, patients and taxpayers; substantially higher quality that shows top-decile performance in certain measures; and improved patient satisfaction.

During the quarter, Ballad Health reported it has successfully deployed the first phase of a more than $200 million technology conversion, bringing more than 80 care sites live on the new Epic electronic health record platform. According to Epic, despite deploying the system during a global pandemic, Ballad Health’s successful conversion was among the best the electronic health record company’s staff had observed, with Ballad Health achieving 100% of the key performance indicators for success.

Also, Ballad Health reported that, as a health system approved under a Certificate of Public Advantage (COPA) in Tennessee and Letter Authorizing a Cooperative Agreement in Virginia, both the State of Tennessee and the Commonwealth of Virginia have found the advantages stemming from the creation of Ballad Health are evident and demonstrable.

“It is the Tennessee Department of Health’s determination that the Ballad Health COPA continues to provide a public advantage,” stated the Tennessee Department of Health in a recent finding, citing, among other things, improvements in a majority of quality measures. “We appreciate, perhaps at this time more than ever, the important role Ballad Health plays in helping TDH fulfill its mission: to protect, promote and improve the health and prosperity of people in Tennessee.”

The Virginia Department of Health agreed with the State of Tennessee’s findings, citing, among other benefits, Ballad Health’s increases in nursing salaries of more than $100 million over 10 years, “the implementation of multiple billing and charging policies to reduce the burden of health cost to the region’s residents,” Ballad Health’s engagement in cost-reducing value-based programs, a majority of quality measures that demonstrate improvement and the likely financial jeopardy of several rural hospitals in Virginia existing prior to the creation of Ballad Health.

The Commonwealth’s Department of Health further independently determined “the benefits of the Cooperative Agreement to-date, and likely to result in the future, continue to outweigh the disadvantages attributable to a reduction in competition” which existed between Ballad Health’s predecessor organizations, Wellmont Health System and Mountain States Health Alliance. The Virginia Department of Health also noted “Ballad Health is a driving force in the area-wide Accountable Care Community that has more than 250 member organizations and has chosen to focus on STRONG children and families in order to improve population health across the region.”

“Ballad Health is grateful for the hard work the State of Tennessee and Commonwealth of Virginia are doing to help health systems respond to the current pandemic, while at the same time working to ensure the creation of Ballad Health continues achieving the policy goals set by both state legislatures,” said Ballad Health Chairman and Chief Executive Officer Alan Levine. “Rural hospitals and health systems all over the nation continue to struggle, and Ballad Health, as a regional system, continues to work hard to provide high-quality care to a rural region that likely would have faced the same loss of hospitals and access other rural communities have faced.”

Levine reiterated that, despite the financial challenges presented by the pandemic, Ballad Health remains committed to reopening a previously closed hospital in Lee County, Virginia.

Recognition by Forbes Magazine as one of the best employers in America for diversity

During the fiscal year, Ballad Health was named by Forbes magazine as the 29th best employer in America for diversity, making the health system the highest-ranked employer overall in Tennessee and Virginia, as well as ranking it with Disney as a company committed to the strength of diversity. Ballad Health welcomes team members and colleagues who are committed to the care of all our patients – regardless of their background – and also to the improvement of the human condition. The recognition validates Ballad Health’s commitment to social responsibility.

Highlights of Ballad Health’s contributions to the region

During the year, Ballad Health invested in several initiatives beneficial to the region, including furthering its partnership with East Tennessee State University (ETSU) and its Quillen College of Medicine.

Among others, some examples of such initiatives include:

• The establishment of the Ballad Health Strong BRAIN Institute/Center for Trauma Informed Care at ETSU for the study of childhood trauma, making ETSU one of the leading organizations in the nation for this emerging area of science
• The funding and establishment of the Center for Rural Health and Research at ETSU, making ETSU one of the nation’s leaders in the study of rural healthcare. This investment drew matching funds from the State of Tennessee, making the contribution the largest in the history of ETSU
• A partnership with one of the nation’s leading healthcare economists at Harvard University, leading to a study on rural healthcare economics that brings together Harvard Medical School with the ETSU Center for Rural Health and Research
• In partnership with ETSU, the recruitment of two pediatric surgeons, bringing the total to three serving the region – an all-time high. These surgeons add additional experience with trauma, complementing an already high-quality surgical program.
• The creation of a new dental residency program in Southwest Virginia, and through a partnership with Mission of Mercy, the opening of the Appalachian Highlands Community Dental Center, which serves the needs of low-income, rural residents
• A new partnership with Ensemble Health, leveraging Ballad Health’s revenue cycle services to bring as many as 500 new jobs to the region
• Investment in partnership with 15 other leading health systems in the United States to bring manufacturing of personal protective equipment back on-shore from China, with Ballad Health taking a position in an American manufacturer – cementing a supply line for Ballad Health and the region
• Creation of a new residential program for women who are pregnant and suffer from addiction. This program has attracted additional investment by the State of Tennessee, and it is in the process of being implemented.
• Through its partnership with the Medicaid Transformation Project and 29 other innovative health systems in America, Ballad Health is contributing to the improvement of healthcare for America’s 75 million consumers who rely on Medicaid.
• Opened a new urgent care facility in Lee County, Virginia – a first step toward reopening a previously closed hospital
• Major expansion of virtual health, creating lower cost and increased access for consumers
• Reduction in pricing for physician practices and urgent care an average of 17%, plus an increase in the discounts for people without insurance to 77%. While many health system mergers result in increases in pricing, Ballad Health remains an outlier by actually implementing a decrease in pricing, making these critical access points more accessible to consumers and reducing out-of-pocket costs.
• Ballad Health’s Accountable Care Organization was named by the United States Centers for Medicare and Medicaid Services (CMS) as one of only 18 in the nation generating savings for taxpayers in every year of the shared savings program – saving taxpayers more than $50 million.
• Ballad Health was highlighted by Harvard University and the nation’s largest health insurer as one of four healthcare organizations leading the way toward value-based healthcare.
• Ballad Health was one of only two health systems in America chosen as a demonstration site for the worldwide Leipzig Interventional Conference in Germany, with Holston Valley Medical Center’s Dr. Chris Metzger joining New York’s Mount Sinai Hospital to demonstrate high-complexity interventional cardiovascular procedures. Alongside Holston Valley being recognized by IBM Watson Health as one of America’s top 50 heart hospitals, Ballad Health retains its place as among the best places in America to seek cardiac care.
• Ballad Health partnered with the Mayo Clinic during the COVID-19 pandemic to lead a research study related to the use of convalescent plasma in the treatment of COVID-19.

Quality of care

Ballad Health’s latest quality measures show 14 of the 17 targeted quality measures prioritized by the states and federal government have improved, relative to the period prior to the merger creating Ballad Health, with improvement being as high as 65%. Among these measures, Ballad Health is now performing among the top 10% of hospitals in the nation in five of the measures. Rural health systems are highly unlikely to be among the top performing, making Ballad Health’s results striking.

During the year, Ballad Health, with the support of its Board of Directors and Medical Staff Clinical Council (composed of nearly 40 physicians from throughout the region), implemented a national best-practice safety huddle process, which engages team members at every level of the organization each morning to focus on patient and team member safety. This initiative, led by Chief Clinical Officer Dr. Amit Vashist, has created a physician/team member/administrative partnership that is demonstrating results.

“Our focus has been, and will always be, the best care for our patients,” Dr. Vashist said. “We honor those we serve by focusing on their safety and providing the best possible care.”

Patient satisfaction

Highlights from Ballad Health’s patient satisfaction surveys are also showing positive trends. During the latter half of the fiscal year, Ballad Health’s inpatient experience and emergency department ratings reached the highest level in more than six months, and the ratings continue to climb.

Ratings showing improvement include: nurses treated the patient with courtesy and respect; patients who rated one of Ballad Health’s hospitals a score of 10 out of 10; those who would “strongly” recommend the hospital to a friend or family member; and cleanliness of the hospital.

“The patient satisfaction journey is one that never ends,” Levine said. “We know each experience is unique, and we have to be relentless in our pursuit of ensuring we meet the needs of each patient and family. A single failure is a 100% failure rate for that patient, and that will never be acceptable to us.”

Financial results

Financial highlights for the quarter ended June 30, 2020

• During the fourth quarter, ending June 30, 2020, Ballad Health recognized $82.5 million in incremental federal funding provided through the Coronavirus Aid, Relief and Economic Security (CARES) Act. For purposes of transparency, financial results are reported with, and without, the impact of the CARES funds.
• On March 10, Ballad Health executed its disaster plan, which includes the activation of its Corporate Emergency Operations Center (CEOC) to coordinate efforts across the system and around the region to rapidly plan for, and execute, ongoing response to the issues resulting from the COVID-19 pandemic. The policy establishing the CEOC is established and authorized by Ballad Health’s Board of Directors, and it follows guidelines established by the Federal Emergency Management Agency (FEMA) and the Centers for Disease Control and Prevention (CDC). Ballad Health’s CEOC is led by an incident commander appointed by the chief executive officer – in this instance, the chief operating officer. The CEOC is composed of key leaders overseeing essential functions of the health system, including logistics, supply chain, communications, operations, finance, government relations and clinical services. The CEOC acts as the clearinghouse for all organizational planning and decision-making related to the event, and it continues its responsibilities under the oversight of, and until discontinued by, the chief executive officer.
• Ballad Health’s fourth-quarter financial results, and therefore, its year-to-date results, were materially impacted by the national outbreak, and response to, the global SARS-CoV-2 (COVID-19) pandemic. Beginning on or about March 17, Ballad Health began experiencing an organic and material slowing of elective procedures and diagnostic services. Effective March 23, Ballad Health complied with the federal and state guidance to cease all non-emergent, elective procedures. Beyond the deferral of these procedures and diagnostic testing, Ballad Health experienced a decline in other types of medical treatment similar in effect to that experienced by most health systems and physician organizations – physician practice, urgent care and other routine medical service visits declined precipitously.

Results from operations

• Volume decline: Ballad Health’s decline in overall volume was accelerated due to the pandemic, with some recovery during the fourth quarter. Acute discharges in the quarter declined by 22.6%. Surgeries performed in the hospital setting decreased by 29.3% to 10,575 cases. Inpatient surgeries declined 26.9%, while outpatient surgeries declined 30.6%. Emergency department visits decreased by 34.7%. 
• Net patient revenue of $379.8 million was $139.1 million, or 26.8%, below the same period the prior year. In addition to the effects of the pandemic on volumes, certain payment policies and economic factors outside the control of Ballad Health – which also disproportionally impact rural and non-urban health systems – compound the appropriate impact of value-based initiatives and include the continued major shift of individuals enrolled in Medicare Fee for Service toward Medicare Advantage and the decreasing share of business covered by commercial insurance. The share of revenue from Medicare Fee for Service declined from 25.7% in the prior quarter to 23.6% in the current year, while Medicare Advantage grew from 28.2% in the prior quarter to 30.2%. Commercially insured revenue decreased from 22.5% in the prior quarter to 22%. Forty percent of Ballad Health’s revenue is attributable to inpatient services; of that revenue, 16% was attributed to commercially insured patients.
• Other operating revenue of $27.7 million exceeded the prior year by $10.8 million (64.1%). Ballad Health recognized payer incentives tied to higher quality of care and reduced cost of care, attributed to Ballad Health’s participation in value-based payment programs.
• Total expenses (prior to the expenses associated with the implementation of a new electronic medical record and the COVID-19 pandemic) of $455.9 million were lower than prior year by $54.3 million (10.6%). The variance is primarily attributable to unprecedented efforts to aggressively reduce operating costs as volumes rapidly decreased, then slowly began recovering.  Cost reduction efforts – staff furloughs, pay reductions for executive management and employed providers and deferral of all non-essential expenses – resulted in approximately $40 million in savings for the quarter. Certain spending related to the Terms of Certification of the COPA in Tennessee and the Letter Authorizing the Cooperative Agreement in Virginia are suspended pursuant to, and compliant with, orders from each state.
• Net operating income (prior to the expenses associated with the implementation of a new electronic medical record and the COVID-19 pandemic) was a $48.4 million loss, as compared to prior year income of $25.6 million. Including the impact of recognizing incremental operating expenses from COVID-19 ($14.1 million), incremental operating expenses related to the Epic electronic health record implementation ($2.2 million) and incremental provider relief provided through the CARES Act ($82.5 million), net operating income for the quarter was $17.7 million compared to prior year of $22.8 million – a 22% decrease. 
• Non-operating income (excluding unrealized gains/losses on investments and change in fair value of derivatives) of $4.9 million was unfavorable to the prior year by $10.7 million. The unfavorable variance is related to the required accounting treatment for unrealized gains and losses for the non-wholly owned entities – Johnston Memorial Hospital and Smyth County Community Hospital. Financial markets have experienced unprecedented turbulence in recent months, as the global investment markets and United States domestic debt capital markets have encountered substantial volatility in the wake of the COVID‐19 pandemic. While Ballad Health is not immune to the market fluctuations, the diversified and conservative approach to both the investment and debt programs have complemented one another, as designed, to assist in loss mitigation. For the quarter, Ballad Health experienced an unrealized gain on investments of $100 million, as markets rebounded substantially from their lows in March, resulting in the recording of minority interest expense for the quarter for the non-wholly owned entities.
• Operating EBITDA (including federal stimulus/CARES Act funds) of $64.4 million was $5 million, or 7.2%, below the same quarter in the prior year. EBITDA was $69.4 million compared to the prior year of $85.1 million. Due to accounting requirements related to minority interest due to the unrealized losses on investments for the non-wholly owned entities, EBITDA adjusted for the minority interest provisions is $82.8 million, compared to a prior year of $88.1 million, a 6% decrease from the same period the prior year. Excluding stimulus (CARES Act) funds, operating EBITDA for the quarter was $(18.1) million, and EBITDA was $(13.1) million, compared to a prior year of $69.4 and $85.1 million, respectively.

Twelve months ended June 20, 2020

• Revenues for the 12 months ended June 30, 2020, totaled $1.993 billion, compared to $2.104 billion in the same period of 2019.
• Total expenses (prior to the incremental expenses associated with the implementation of a new electronic medical record and the COVID-19 pandemic) totaled $2.031 billion, as compared to the prior year of $2.060 billion.
• Net operating income (prior to the expenses associated with the implementation of a new electronic medical record and the COVID-19 pandemic) was a $38.5 million loss compared to $44.1 million in the prior year.
• Expenses related to the implementation of a new electronic health record were $11.0 million, compared to $7.7 million in the prior year. Additional recognized expenses resulting from the COVID-19 pandemic were $14.1 million.
• Ballad Health recognized $82.5 million of income from the provider relief fund established by the CARES Act. After the new health record implementation, additional expenses related to the pandemic and stimulus relief funds, net operating income was $18.9 million, compared to a prior year income of $36.5 million – a 48% decrease.
• Operating EBITDA of $205.9 million was $22.2 million, or 9.7%, below the prior year. EBITDA of $246.3 million was $8.2 million, or 3.2%, below the prior year. Excluding stimulus funds, operating EBITDA was $123.4 million, and EBITDA was $163.8 million compared to a prior year of $228.1 million and $254.5 million respectively.

Capital investment

Significant capital investment related to information technology infrastructure and a common electronic health record, building improvements, new ventilators, laboratory and microbiology equipment, new diagnostic equipment and technology, 3D mammography upgrades, replacement of patient beds and navigational diagnostic systems totaled $116 million for the fiscal year. New major capital spending was limited in the fourth quarter, with the onset of the financial impact of the pandemic.

Debt compliance

The global investment markets and domestic debt capital markets encountered substantial volatility in the wake of the COVID‐19 pandemic. While Ballad Health was not immune to the market fluctuations, the diversified approach to both the investment and debt programs complemented one another to assist in loss mitigation. As of June 30, 2020, Ballad Health had $1.375 billion in debt outstanding, an increase of $30.3 million over the prior year end. Total debt outstanding increased, due to the adoption of the Accounting Standards Update No. 2016-02, Leases, which requires balance sheet recognition of a liability and right-to-use asset for substantially all leases. The total additional debt recognized as a result of the new accounting treatment as of June 30, 2020, was $30.6 million. Total debt outstanding consisted of fixed-rate serial, term, capital appreciation and revenue bonds; variable rate term bonds; variable rate equipment leasing; and capital lease obligations. Several of the real estate transactions made by Ballad Health after Feb. 1, 2018, were intended to reduce the lease liability through conversion to ownership.

Credit ratings

Ballad Health carries underlying ratings that consist of Fitch Ratings: “A,” Standard & Poor’s:

“A-” and Moody’s Investor Service: “Baa1,” with positive outlook.

Days cash on hand

Pursuant to the Master Trust Indenture (MTI), Ballad Health is required to maintain 100 days cash on hand. For the quarter ended June 30, 2020, Ballad Health’s days cash on hand was 324, more than sufficient to meet the covenant requirements under the MTI. Ballad Health has received $200 million through the Medicare Accelerated and Advance Payment Program, provided to hospitals and health systems to assist with cash flow during the volume disruption caused by the required deferral of elective procedures. These advance payments result in an offsetting liability, with repayment required over a 12-month period beginning 120 days after disbursement.

Forward-looking information

The following commentary contains information that may be considered forward-looking. While these statements reflect management’s best judgment on what the future might hold, they are subject to risk and uncertainty that can cause actual results to differ materially. The reader should not place undue reliance on these forward-looking statements, which reflect management’s opinion only as of the date of this publication. Ballad Health is not obligated to revise or publicly release revisions to these forward-looking statements in light of new information or future events.

• Due to the unknown duration or extent of the outbreak, Ballad Health is unable to predict when patient volumes will return to historically normal levels or predict the amount of COVID-19 related care it might ultimately provide. Ballad Health cannot presently quantify or estimate the immediate or long-term cumulative impact of this pandemic.
• Ballad Health is unable to quantify changes in revenues due to declining patient volumes; changes in payer mix and deteriorating macroeconomic conditions; potential increased expenses related to labor, supply chain or other expenditures; and the timing and availability of effective medical treatments and vaccines.
• Ballad Health cannot predict the impact of future government and administrative regulation and stimulus funding.
• Ballad Health is experiencing a surge in cases throughout the Appalachian Highlands region of Northeast Tennessee and Southwest Virginia. Ballad Health cannot predict the impact, financial or otherwise, of variations in volumes of COVID-19 cases in the region.
• The chief executive officer has appointed a recovery team, led by the chief administrative officer, to work in partnership with physicians, operations and clinical leadership for managing the resumption and capacity of services. The recovery team is also charged with identifying various provisions of federal and state support intended to provide relief to hospitals and health systems. Ballad Health intends to participate meaningfully in efforts to seek the appropriate relief intended in law.