Credit and the Financialization of the Voluntary Sector

Moody’s, one of the three principle credit rating agencies, rated Aurora Health Care, Inc. A3 on January 13, 2010 (Moody 2010). This A3 rating placed Aurora in the ‘high upper medium’ credit grade and ensured bonds issued on behalf of Aurora would still be attractive to institutional investors. Aurora is the largest non-profit health care system in the state of Wisconsin and has locations throughout state. However, their facilities are concentrated in Milwaukee, its largest city. This rating was likely a relief to Aurora, given that Moody’s observed "high downgrade activity" in the US non-profit health care sector throughout 2009 (Masterson 2010). The downward trajectory of the credit risk of non-profit hospitals was related to two interrelated events. First, the financial crisis had a devastating effect on the overall US economy. Consequently, hospitals faced rising demand for charity care and a surge in bad debt, as unemployment increased and people were no longer able to pay hospital bills. Second, their own fiscal health was linked to the financial markets in numerous other ways. Aurora, in 2008, lost $73 million worth of investment assets and another $56 million due to ending up on the wrong side of variable interests rate bets. Furthermore, their defined benefit pension scheme also experienced substantial losses in the late 2000s. Aurora, by the end of 2008, had $347.8 million in unfunded pension obligations. Given these significant challenges to Aurora’s financial health, it is fair to ask how the company was able to receive such an optimistic credit rating?

Aurora’s financial ‘success’ was largely based on their spatial extension and reorganization. Beginning in 2004, Aurora enjoyed four straight years in which their operating cash flow increased. This increase, according to Moody’s (2010: 4), was the result of:

outpatient volume growth (surgical and non-surgical procedures); generally increasing observation stay volumes...; price increases; improved efficiencies; and supply cost savings. Aurora's favorable payer mix also contributes to its ability to grow revenues (just 50% of revenues are derived from Medicare and Medicaid combined).

This financial language renders the extensive reorganization of Aurora’s health care system understandable to investment managers. The actual practices that made this financial ‘success’ possible were Aurora’s expansion into the higher income suburbs of Milwaukee, its purchase of lucrative private physician practices, and the decrease of its spatial footprint in the economically depressed urban neighbourhoods of the city (see Hossler 2012; forthcoming).

Aurora’s financial ‘health’ reveals uncomfortable tensions that underlie the increasing use of the voluntary sector for the delivery of essential social services. In the absence of adequate state funding for social reproduction, voluntary sector organizations are increasingly turning to the private sector for access to financial resources – capital. In Aurora’s case, this means the bond market to fund its expansion into the suburbs and the investment markets to support its employee’s pensions. In the boom years of the capitalist economic cycle this strategy allowed voluntary sector institutions, such as Aurora, to meet their social mission – to serve the community – as well as it their financial requirements. However, during the lean years of the capitalist crisis, these objectives become increasingly incompatible. This suggests that the financial relations that underpin the voluntary sector require more analysis if they are truly to offer a ‘third way’.

Peter Hossler

References Cited

Hossler, Peter. “Free Health Clinics, Resistance and the Entanglement of Christianity and Commodified Health Care Delivery.” Antipode 44, no. 1 (2012): 98–121.

Hossler, P. “The Privatization of the Milwaukee Clinical Campus: A Case (study) for Geographic Approaches to Medical Services.” Geoforum (forthcoming).

Masterson, L. “Moody’s: Nonprofit Healtcare Downgrades Continue to Outpace Upgrades.” Health Leaders Media, February 17, 2010.

Wexler, BI, and SA Vennekotter. Moody’s Assigns A3 Rating to Aurora Health Care’s $226.2 Million of Series 2010A Bonds; Outlook Is Stable. Credit Rating Press Release. January 13, 2010. Moody’s. Accessed October 20, 2012. www.bondsonline.com/print/Todays_Market/Credit_Rating_News_.php?DA=view&RID=8759.