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Guy
What's the financial health of MarinHealth?
Summary of what we are looking at
The MarinHealth complex consists of three interlocking building blocks. They consist of:
The Oak Pavillion Hospital Building (Building). This is the main asset of the complex;
- The Marin General Hospital (Hospital). This is the non-profit entity that manages the Building's hospital operations. The Hospital labor force includes all the doctors and nurses. The Hospital leases the Building from the Marin Healthcare District;
- The Marin Healthcare District (District) is a local healthcare district, a political subdivision of the State of California. It owns the Building and leases it to the Hospital. It is essentially a financing vehicle to finance the capital expenditures of the Building. It financed the construction and improvements of the Building by issuing two large general obligation bonds in 2015 and 2017.
- The District's bonds have a very high credit rating of AA because the source of repayment is a parcel tax on Marin County's property owners.
As we will see, the overall financial condition of the MarinHealth complex is sound in good part because of the District's reliance on Marin County property taxpayers.
Table of Content
- How the MarinHealth world works
- The Marin Healthcare District (District) benefits
- The combined asset base: Hospital + District
- The Hospital's financial profile
- The Hospital's debt repayment capacity
- The District's financial profile
- The District's debt repayment capacity
- Your property tax financing the District
How the MarinHealth world works
Marin General Hospital (dba MarinHealth Medical Center) operates the Oak Pavillion Hospital in Greenbrae.
Marin General Hospital leases the Oak Pavillion Hospital from the Marin Healthcare District, which owns the Oak Pavillion Hospital Building.
As shown above, the Marin General Hospital (Hospital) pays annual lease payments ranging from $500K to $1 million p.a. to the Marin Healthcare District (District) for the use of the Oak Pavillion Hospital Building (Building).
The District receives about $16 million p.a. in property tax receipts from Marin County property owners. And, it uses this $16 million to repay bonds' annual principal and interest payments to bond investors. The District has on its balance sheet $394 million in bonds outstanding associated with the financing and capital expenditures related to the Building.
The Marin Healthcare District (District) benefits
The District is a financing vehicle for the Hospital's capital expenditures related to the Building. Without the District's financing capacity (property tax), the Hospital would not have been able to finance the construction of the Building shown below.
The District gathers $16 million in local property tax to finance the mentioned Building's capital expenditures for the ultimate benefit of the Hospital.
The District bonds are considered unlimited tax general obligation bonds secured by unlimited property parcel tax on Marin County's property owners located within the District. As a result, they have a very high rating of AA.
The Hospital bonds are revenue bonds secured by the gross revenues of the Hospital. These bonds are considered far riskier and are rated BBB, at the bottom of the investment grade category.
In summary, the District allows the Hospital to receive $16 million in property tax receipt p.a. associated with bonds with a far higher rating of AA vs only BBB for the Hospital. The District's much higher bond rating reduces the ultimate borrowing cost of the District & Hospital enterprise.
The combined asset base: Hospital + District
The table below shows that the District had few assets until 2015.
The District's assets jumped from $13 million in 2014 to $217 million in 2015. This was due to a large bond issuance in late 2015 associated with the commencement of construction of the new Oak Pavillion Building.
The District's assets experienced another big jump in 2017 due to another large bond issuance associated with the project completion of the new Oak Pavillion building.
As shown in the table above and the right-hand graph below, the District's assets represent close to 50% of the combined assets since 2015.
The Hospital's financial profile
(using ProPublica Form 990 tax filing disclosure)
Running a hospital is a financial management challenge. The objective of a nonprofit hospital is to maintain a sustainable operating performance and balance sheet. The Hospital has pretty much achieved that. However, its financial profile is somewhat fragile due to volatile profitability. It lost money in 2011 and 2020, and barely broke even in 2021 (2020 & 2021 performance reflected the impact of COVID when patients deferred surgeries).
As some of the metrics below indicate:
- Since 2017, Profit Margin (A) incrementally declined with a mild rebound in 2022. Time will tell if this rebound is sustainable.
- Since 2011, Asset Turnover (B) trended downward.
- Since 2017, Return on Assets (ROA) trended downward (since ROA (C) is the product of Profit Margin (A) x Asset Turnover (B).
- Leverage as defined (Assets/Equity) has remained relatively constant
- ROE's trends are fairly similar to ROA since ROE (E) is the product of ROA (B) x Leverage D.
On a positive note, when looking at the table above, the mentioned metrics have recovered from the bottom levels incurred in 2020 due to COVID. However, the metrics' levels in 2022 are often below the long-term Median (shown as dashed red lines on the graphs below).
The Hospital's debt repayment capacity
(using audited financial statements)
The Hospital discloses very little audited financial information. I actually could not get any such information by contacting their Finance Dept. or the rating agencies. I only found audited financials for 2020 to 2022 through ProPublica.
The summary audited financial information shown below is not consistent with the Form 990 tax filing (gathered by ProPublica). Such inconsistency between audited financial statements and tax return information is due to divergence in accounting standards vs tax rulings. Directionally there is enough convergence between the two sets of statements to alleviate serious concerns.
In the tables shown below, the Operating Income, Cash flow before debt service, Debt service, and ultimately Cash Flow/Debt service indicate that the Hospital debt servicing capacity has much improved over the most recent three fiscal years. Remember that 2020 was by far the worst in recent years due to the impact of COVID when many patients deferred surgeries.
The table below discloses the actual Hospital bond and leases maturities incurred in 2022 and the scheduled ones for 2023 to 2027. As shown this schedule indicates that scheduled Hospital debt maturities will remain very much at the same level as the actual ones in 2022.
Given the above, the Hospital should be able to handily service its debt in the coming few years.
The District's financial profile
(Using audited financial statements)
Contrary to the Hospital, the District discloses all its audited financial statements going back to 2011 - 2010. This is odd since the District's financial condition is far less important and informative than the Hospital one (given that the District bond repayment capacity is secured by property taxes on Marin County property owners).
You can find all the District's audited financial statements on their website.
As shown in the table below, and as mentioned earlier the District's assets (and liabilities) jumped in both 2015 and 2017 due to large bond issuances to finance the construction of the Building.
The District financial metrics shown below indicate that the large bond issuances in 2015 and 2017 caused a surge in the District's balance sheet leverage. Also, profitability has been very volatile including large losses as a % of the District's Equity in both 2021 and 2022. As a result, the District's Equity has declined by 32% from $67.4 million in 2020 to $45.9 million in 2022. Over the same period, the Leverage rose from 7.1 to 9.8.
Below, we visualize some of those metrics. As shown in the graphs, the recent District's ROAs and ROEs are running far below the long-term Median. And, the Leverage is now also above the Median.
On a stand-alone basis, the District's financial profile would certainly not warrant its AA rating. Keep in mind, that the District's high bond rating is solely due to its debt servicing capacity being derived from Marin County property taxpayers.
The District's debt repayment capacity
The District's debt repayment capacity relies on property tax receipts from Marin County property owners. The property tax receipts (about $16 million) are closely aligned with bond servicing (principal + interest).
When the Debt servicing capacity ratios are much below 1.0 as in 2019 and 2018, the above streamlined financial statements do not capture large cash flow items associated with large accounting accrual changes and ad hoc sharing of patient receipts between the District and the Hospital. Such large items have not materially affected the cash flow of the District since fiscal 2019.
The District's debt schedule (repayment of bonds to finance the construction of the Building) does not trigger any long-term financial concerns.
The debt service schedule over the 2023 to 2027 period would call for only a moderate increase in tax receipts. In 2047, at the maturity of the bonds, the debt service schedule in that year would call for property taxes that would have grown by 3.4% per year over the level in 2023. This annual growth rate of 3.4% sustained over a 24-year period is very low by historical standards.
As a proxy for the District's property-assessed value's compounded annual growth rate (CAGR) over a 24-year period, I got excellent data for the Tamalpais Union High School District (TUHSD) property-assessed value. As shown in the graph below the 24-year CAGR has remained steadily between 5.5% and 6.0% since 2024.
Given the above, it appears reasonable that the District's property tax receipts (based on the District's assessed value) will grow by 3.4% p.a. over the next 24 years.
Your property tax financing the District
If you are a homeowner or a landlord located within the District's area, you are funding the District with a parcel tax of about 0.02% or around $20 per $100,000 of assessed value. If your property's assessed value is $1 million, your District's parcel tax is $200.
You can find the exact parcel tax figure by going to the Marin County Property Tax bill web page.
On the third line of your property tax bill, you will see "HEALTH BONDS" associated with a parcel tax rate of 0.0197% (pretty close to 0.02%).
Next, if you click on HEALTH BONDS" you will see the following information.
The above table shows that you incur two parcel taxes. The first one is for the District bond issued in 2015 and is associated with a parcel tax of 0.0093%. The second one is for the District bond issued in 2017 with a parcel tax of 0.0104%. And, the sum of those two parcel taxes equals the 0.0197% mentioned above.
The Marin County Tax Assessor has quite a bit of freedom in tweaking this property tax parcel tax rate as needed to meet precisely the District bond repayments. As shown in the table below, this property or parcel tax rate has changed quite a bit from year to year. But, it remains typically pretty close to 0.02%.
You can think of the several hundred dollars you pay in this District's parcel tax as a yearly healthcare premium to access a first-class local hospital. Relative to all your other healthcare premiums and out-of-pocket costs, this is a small yearly premium. I would venture that for the majority of homeowners, this District's parcel tax is far lower than their respective premiums for either healthcare, drug, or even dental coverage.
THE END
Gaetan Lion is an independent researcher with expertise in economics, econometrics, investments, risk management, statistics, and quantitative analysis. His areas of interest include demographics, economics, investments, Climate Change, health care, sports, and politics.