Months after Minnesota’s second-largest healthcare employer was downgraded by two rating agencies, the Minnesota Nurses Association is taking aim at the management of Minneapolis-based Allina Health and arguing that Allina’s board should be composed of “largely bedside workers.”
The union, which represents 22,000 nurses across Minnesota, Wisconsin, North Dakota and Iowa,
A spokesperson for the MNA told The Bond Buyer that during contract negotiations next year, the nurses union will bring “concrete proposals” to management to address staffing and retention issues. She said the union believes the health system “has squandered many of its advantages” and “providing frontline healthcare workers a direct say in governance” is the solution.
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“Rather than take on more debt to fund vanity projects, farm work out to for-profits with questionable records, or hire high-priced consultants to cut nurse-to-patient staffing levels, Allina needs to invest in frontline workers and provide them with the resources needed to ensure safe staffing and quality patient care,” the spokesperson added.
The union’s report contains some incendiary language and imprecise accusations — for example, implying Piper Sandler was lead underwriter on deals for which it was not. But it also raises a question: Are Allina’s debt load and downgrades related to broader challenges facing the nonprofit healthcare sector, or do they stem from an increase in board members with ties to financial services, as the nurses allege?
The Allina system includes 11 hospitals, 60 primary care clinics and 20 urgent care centers in Minnesota and western Wisconsin. In 2023, it saw 6.25 million clinic and urgent care visits and 1.4 million hospital visits, according to its website.
According to postings on the Municipal Securities Rulemaking Board’s EMMA website, Allina has issued bonds through the Minneapolis-St. Paul Housing and Redevelopment Authority, the city of Minneapolis and the cities of Woodbury, Eagan and Forest Lake, Minnesota. The system had $1.8 billion in total debt after its most recent bond issuance of Series 2023A and 2023B revenue bonds.
The MNA notes that Allina’s board has 22 members, 11 with previous healthcare experience. About 55% of the board members work for banks, investment firms, accounting, insurance or finance-related companies, according to the union’s report.
The report criticizes “a focus on short-term profitability and cost-cutting,” an increase in the share of contract labor and several executives from Minneapolis-based investment bank Piper Sandler who served on Allina’s board.
The nurses also slam the use of Huron Consulting; recent staffing level changes; the outsourcing of information systems and revenue cycle management work; and “the financialization of Minnesota healthcare.”
Allina spokespeople did not respond to requests for comment. Piper Sandler declined to comment.
“Over the last couple of years, they’ve had challenging operations, which the whole industry had been facing,” said Brian Williamson, director at Fitch and lead analyst on Allina. “As they’ve had challenging operations, they weren’t able to generate a lot of cash flow, and that subsequently impacted their balance sheet from an unrestricted cash standpoint, which is something that we really look at” regarding ratings.
“We’ve seen it happen since the pandemic: pretty much the whole industry was impacted with rising supply costs and rising labor costs, and then inflation kind of kicks in — so the last couple years have been various things that have challenged and impacted operations for the industry, including Allina,” he added. “Some people have been able to move on a little faster than others, and some have taken a little more time.”
Marc Bertrand, director at S&P, noted Allina’s performance has improved in the last quarter, and also pointed to industry-wide challenges that have hit Allina and other nonprofit health systems.
“We know that Allina had a lot of initiatives to turn performance around, and we’re expecting some operational improvements,” he said. “As we look at the second quarter results of Q2 2024, the publicly available reports show a loss of about $112 million, and that includes about $48 million of restructuring expenses, so it’s still a loss, but it’s certainly lower when you compare it to the prior year numbers, which I think were probably double that.”
He added, “Overall, when we look at cases like this, we do believe that returning performance to levels closer to historical levels is a multi-year process.”
The nurses union blamed the deterioration in the system’s bond ratings on the share of board members with financial industry experience.
The MNA spokesperson told The Bond Buyer that “with Allina sinking into further debt and its bond rating being downgraded yet again, patients, nurses, and community members deserve to know” more about current and former board members’ allegiances.
“The millions paid to Piper Sandler and other middlemen are far better used to make our healthcare system more affordable and accessible for all,” she said.
The union’s critique implies that Allina’s bond investments have been wasted, “potentially a priority of the Piper-led board whose members may care more about flashy buildings and less about further burdens to the system.”
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Allina’s most recent downgrades came earlier this year. On April 17, Fitch downgraded the system’s long-term issuer default rating and long-term ratings on outstanding revenue bonds to A-plus from AA-minus. On Feb. 8, S&P Global Ratings downgraded the system’s taxable bonds, and its long-term rating on bonds issued by various authorities for Allina, to A-plus from AA-minus.
“Management continues to address the rise in the expense base and was able to stem a much larger operational loss in fiscal 2023,” Fitch noted in its rating report. “Fitch expects that the operational improvement will continue over the outlook period; however, balance sheet metrics are expected to improve over a longer period.”
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In an April 2023 credit opinion, Moody’s said its A1 rating of Allina’s revenue bonds reflects the system’s favorable market position. The outlook is stable.
While the nurses union questions an “agenda” of “cutting labor costs, closing ‘underperforming’ service lines, hospitals, and clinics, and pursuing mergers and acquisitions,” bond rating agencies don’t see Allina going over a financial cliff.
“Management implemented strategic initiatives and hired a consultant to help grow revenues and stem the rising expense base. With these moves, Allina was able to end fiscal 2023 on a positive trend,” Fitch said. “Fitch expects that Allina will be able to execute on more strategic initiatives going forward.”
The nurses also critique Allina’s “growing appetite for spending hospital dollars on expensive contract labor.” But the use of contract labor has been an industry-wide trend during the pandemic and post-pandemic era, as “unprecedented” numbers of full-time
Mark Pascaris, analytic lead of nonprofit healthcare at Fitch, said Allina’s use of contract labor was nothing out of the ordinary for the sector.
“Industry-wide, almost every hospital and health system that we rate, really almost without exception, there’s been a pronounced increase in labor wage pressure,” he said. “Really as we started to come out of the pandemic, it really started to hit in late 2021 and it accelerated into 2022, and as a result, the use rate and the cost rate of contract labor really exploded, particularly in 2022. And then towards the end of 2023 and now into 2024, we’ve started to see those trends moderate.”
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The nurses union further took issue with a joint venture between Allina and Flare that emphasizes nursing-at-home programs. Suzie Desai, director and sector lead of nonprofit healthcare at S&P, said “everyone knows” there’s a shift that’s happening around length of hospital stays.
“Generally, across the sector, we’re seeing the shifts from inpatient to outpatient and the shifts to home [care], so a lot of times, organizations will joint venture because it’s maybe not in their full wheelhouse or they don’t have the expertise or some other organization can help contribute to that growth,” she said. “So that is something that a lot of providers are doing — we’ll see urgent care, we’ll see hospital-at-home, we’ll see some of those things where you joint venture to help manage that shift in volume that’s happening.”
The rating agencies seemed to agree with the nurses on one thing: they praised Allina’s transition away from policies like denying care to anyone with a certain level of outstanding medical bills.
“We view favorably Allina’s continued execution of Allina’s strategy to pursue growth opportunities and build on the system’s large clinically integrated network, to shift Allina toward value-based reimbursement in a measured way, and to be more consumer-oriented across the system,” S&P noted in its rating report. “We believe these investments, along with the completion of the organization’s ongoing capital project, should help Allina remain one of the market leaders in the greater Minneapolis-St. Paul region.”