Proposed accounting rule could shift millions into hospitals’ current debt

A proposed accounting rule would flip certain debt from non-current to current, and some hospital leaders say the change—affecting tens of millions of dollars in some cases—could throw their debt ratios out of whack.

The Financial Accounting Standards Board says the proposed standard, Topic 470, is meant to simplify debt classification on balance sheets, and comes after stakeholders complained the current method is unnecessarily complex. In essence, the rule would replace current guidance with uniform principles for determining debt classification, according to a FASB explainer.

Under the proposal, a letter of credit could no longer be used to classify a type of bond called a variable rate debt obligation as current. Today, VRDOs can be treated as long-term obligations so long as they’re remarketed, or have long-term LOCs.

“People look at your company different when you all of a sudden have an extra $75 million in short-term liability,” said Jared Grant, senior director of financial reporting for St. Luke’s Health System in Boise, Idaho.

About $75 million of the $900 million in debt offerings St. Luke’s reissued last year were VRDOs backed by LOCs, Grant said. That debt is classified as non-current on the health system’s balance sheet. Grant has not calculated what the change would do to St. Luke’s debt ratio, but he thinks it would be significant. He’s worried it could even have a negative effect on St. Luke’s bond ratings.

“It’s a large chunk,” he said. “If that went to current treatment all of a sudden, that would be a large shift.”

VRDOs backed by LOCs make sense for some health systems because they allow them to obtain financing at attractive rates, said Norman Mosrie, a partner with DHG Healthcare and chair of the Healthcare Financial Management Association’s principles and practices board.

Some of the VRDOs on today’s balance sheets are legacy deals. The method lost popularity in recent years as borrowers turned to fixed rate bonds to lock in low interest rates, he said. Back in 2014, the VRDO market was worth $222 billion, according to the Municipal Securities Rulemaking Board.

“This has been an important financing mechanism for health systems over the years,” Mosrie said.

Mosrie expressed concern over whether bondholders would accommodate potential negative impacts to bond covenants under the proposed rule, or whether credit rating agencies would move to downgrade based on the large amount of debt classified as current.

Rating agency representatives, however, said they would not hold it against a company’s rating. At S&P Global Ratings, analysts’ practice is already to classify VRDOs as long-term debt even if they’re listed as current on balance sheets, said Kenneth Gacka, a senior director and analytical manager in S&P’s not-for-profit healthcare division.

“I don’t think it will affect anything in terms of the presentation of our ratios, because we already make that adjustment whenever it is present,” he said.

Similarly, Kevin Holloran, a senior director with Fitch Ratings, wrote in an email that his agency would also consider that a long-term obligation. That said, a casual reader could potentially be misled, he said.

Mosrie hopes the FASB, a not-for-profit organization that sets standards companies must abide by if they follow generally accepted accounting principles, continues to allow long-term LOCs linked to debt financing transactions be classified as non-current. The FASB is accepting comments on the rule until Oct. 28. This proposal is an updated version of an earlier proposed rule released in 2017. The new version is based on substantial feedback.

FASB spokeswoman Christine Klimek wrote in an email that consistent with the goal of simplifying guidance, the board proposed precluding consideration of unused, long-term financing arrangements to provide financial statement users with more consistent and transparent information about the contractual maturities of debt arrangements.

If the rule ultimately does take effect, Rick Kes, a partner and healthcare industry senior analyst with RSM, said he thinks health systems with this type of debt will renegotiate it and change the terms.

“I think most health systems that can do it would rather not have current debt on their balance sheet if they can avoid it,” he said.

That’s what Doug Coffman, chief financial officer of West Virginia United Health System, said would likely be his course of action. Otherwise, his 10-hospital health system with more than $2 billion in annual revenue would see its debt ratio drop from about 2.5%, well above its peer group, to about 2%, right in the middle of the pack. Almost $80 million of WVU Medicine’s $1.3 billion in outstanding debt obligations is VRDOs, Coffman said.

Coffman thinks the potential effects of the change extend beyond health systems, and could hit the banks that issue LOCs and bond underwriters if the VRDO market becomes less attractive.

“I’m not sure that FASB fully grasped that possible impact as they drafted this, but maybe they did,” he said.

WVU Medicine chose VRDOs for two reasons: interest rate diversification and some of the system’s fixed rate swap agreements require that it have some variable rate debt, Coffman said.

When St. Luke’s was going over its financing options, investment bankers presented VRDOs backed by LOCs as one of multiple long-term debt vehicles, Grant said. The health system chose it as one of the five vehicles it used, in part to diversify and because the price was competitive.

If the proposed rule takes effect, Grant said St. Luke’s will consider getting out of VRDOs.

“I think eventually it would poison this vehicle a little bit from health systems on wanting to ever really even touch it if this was the guidance,” he said.

https://www.modernhealthcare.com/providers/proposed-accounting-rule-could-shift-millions-hospitals-current-debt

Senseonics up on expanded coverage of Eversense continuous glucose monitor

Senseonics Holdings (NYSEMKT:SENS) announces that Health Care Service Corporation (HCSC) – Blue Cross Blue Shield is now providing coverage for the Eversense Continuous Glucose Monitoring (CGM) System effective tomorrow, October 15.

HCSC, an independent licensee of the Blue Cross and Blue Shield Association, is the fourth largest health insurer in the U.S., operating as Blue Cross and Blue Shield plans in Illinois, Montana, New Mexico, Oklahoma and Texas serving more than 16M covered lives.

Shares up 10% after hours.

https://seekingalpha.com/news/3505630-senseonics-10-percent-hours-expanded-coverage-eversense-cgm

Reata’s omaveloxolone successful in mid-stage ataxia study

Reata Pharmaceuticals (NASDAQ:RETA) announces positive results from the registrational portion of its Phase 2 clinical trial, MOXIe, evaluating omaveloxolone in patients with a rare inherited neurodegenerative disorder called Friedreich’s ataxia (FA).

The study met the primary endpoint of the change in the modified FA Rating Scale (mFARS) at week 48 versus placebo. The treatment effect was time-dependent with the most significant improvement observed after 48 weeks.

Management will host a conference call tomorrow, October 15, at 8:00 am ET to discuss the results.

Nrf2 is a transcription factor that promotes normal mitochondrial function. Omaveloxolone is a Nrf2 activator that restores mitochondrial production of an enzyme called ATP (adenosine triphosphate) that plays an essential role in energy production. It also increases the production of antioxidants which reduces oxidative stress and inflammatory signaling, the underlying causes of a range of diseases.

Shares, currently halted, will resume trading at 4:30 pm ET.

Update: Shares up 33% after hours.

https://seekingalpha.com/news/3505622-reatas-omaveloxolone-successful-mid-stage-fa-study

FDA OKs Akorn’s betamethasone lotion

The FDA approves Akorn’s (NASDAQ:AKRX) betamethasone dipropionate lotion USP (augmented), 0.05%, a topical corticosteroid for the treatment of inflammatory skin conditions.

Per IQVIA, the U.S. market is ~$10M.

Shares up 6% after hours.

https://seekingalpha.com/news/3505625-fda-oks-akorns-betamethasone-lotion

Do High-Dose Statins Increase the Risk for Osteoporosis?

The protective effect of statin therapy on bone health that has been demonstrated in some studies may be dose-related, and although low doses are associated with a reduced risk for osteoporosis, high doses were linked to an increased risk of the bone disease in new research.
“To the best of our knowledge, this is the first study which shows that it is important to consider the different kinds of substances and dosages when investigating the relationship of osteoporosis and statin therapy,” say Michael Leutner, MD, of the Clinical Division of Endocrinology and Metabolism, Unit of Gender Medicine, Medical University of Vienna, Austria, and colleagues in an article published online in the Annals of the Rheumatic Diseases.
“The results were surprising for us,” senior author Alexandra Kautzky-Willer, Dr Med, also of the Medical University of Vienna, told Medscape Medical News.
“We propose that monitoring high-risk patients, that is, postmenopausal female patients under high-dosage statin therapy, might be useful in order to offer an individual therapy to prevent or treat osteoporosis,” she said.
Asked to comment, Ching-Lung Cheung, PhD, assistant professor in the Department of Pharmacology and Pharmacy and investigator with the Center for Genomic Sciences at the University of Hong Kong, said key caveats to consider in the study include the role of high cholesterol, which prompts the need for higher doses of statins.
“Elevated serum low-density lipoprotein (LDL) cholesterol is associated with reduced bone mineral density (BMD); thus, it is possible that those patients receiving high-dose statins had a lower baseline BMD compared to those receiving low-dose statins, which confound the observed association,” Cheung, who is also involved in research on the relationship between statins and bone health, told Medscape Medical News.

Large Study in Austrian Population

For the large population study, Leutner and colleagues reviewed data on all Austrians younger than 90 years, nearly 8 million, from January 2006 to December 2007.

They identified 353,502 patients who had been taking one of the seven statins available at the time for at least 1 year, including simvastatin, lovastatin, pravastatin, fluvastatin, atorvastatin, cerivastatin and rosuvastatin. The patients were approximately evenly divided among males and females.
Among them, 11,701 patients, including 1765 males and 9936 females, were diagnosed with osteoporosis, according to International Classification of Diseases, 10th Revision (ICD10) codes.
They were compared with a control group of about 7.5 million patients who were not treated with statins. About 3.5 million were male and 4 million were female. Among them, 68,699 were diagnosed with osteoporosis, including 10,410 males and 58,289 females.
Overall, treatment with statins was associated with more than threefold greater odds of having osteoporosis compared to nonstatin use among control persons (odds ratio [OR], 3.62; P < .01).
However, low-dose statin therapy (0 – 10 mg/day) was associated with a lower risk for osteoporosis.
The effects were similar for the different drugs, including lovastatin (OR, 0.39; P < .05), pravastatin (OR, 0.68; P < .01), simvastatin (OR, 0.70; P < .01), and rosuvastatin (OR, 0.69; P < .01).
However, risk for osteoporosis increased among those taking higher doses of statins, defined as doses exceeding 40 mg for simvastatin (OR, 1.64; P < .01) and exceeding 20 mg for atorvastatin (OR, 1.78; P < .01) and rosuvastatin (OR, 2.04; P < .01), compared to control persons.

The study controlled for other prescribed drugs and for comorbidities that included diabetes and diseases typically treated with corticosteroids that are known risk factors for the development of osteoporosis.

Could Higher Doses of Statins Affect Sex Hormones?

Kautzky-Willer explained, “In mouse models and in vitro, statins have been shown to enhance bone formation ― for example, by increasing the expression of bone morphogenic protein (BMP-2), which is an osteoprotective protein. However, statin dosages were insufficiently considered in existing studies.
“In lower dosages of statins, this osteoprotective effect of BMP-2 could be a major reason for the lower rates of diagnosed osteoporosis,” she said.

However, estrogen, which plays a crucial role in the maintenance of BMD, is derived from cholesterol.
Therefore, the strong cholesterol-lowering effects of stains at high doses could also lower estrogen and have an effect on the bones similar to that of menopause, which is a leading cause of osteoporosis.
“Our hypothesis is that in higher dosages of statins, the possible inhibiting effect of statins on sex hormones could overrule the osteoprotective effect,” Kautzky-Willer said.

Likewise, statin use has been associated with reduced levels of testosterone in some research. One study showed that higher levels of non–sex hormone–binding globulin-bound testosterone were associated with a decrease in BMD in Korean men.
“Taken together, these findings suggest a connection between sex hormone levels and statins in the pathogenesis of osteoporosis,” the Austrian authors conclude.

Whether Statins Affect Levels of Sex Hormones Requires Further Study

Cheung and some of his colleagues focused on the roles of LDL cholesterol and statins in bone health in research reported as a poster at last month’s annual meeting of the American Society for Bone and Mineral Research.
Using a US cohort from NHANES III (n = 3638) and another from the Hong Kong Osteoporosis Study (n = 1128), they found that reductions in LDL cholesterol were significantly associated with increases in femoral neck and lumbar spine BMD.
Furthermore, statins’ LDL cholesterol–lowering proxies were associated with increased total body BMD.
These findings “suggest that statin use was associated with increased BMD,” Cheung said.
In further commenting on the Austrian study, Cheung agreed that the potential effect of high-dose statins on sex hormones is noteworthy.
“This is an interesting hypothesis,” he said. “Although the authors mention a few studies showing a significant association between statins and sex hormones, there [are also] a few studies showing null association of statins with sex hormones.
“Thus, whether statins use affects sex hormone requires further study,” he commented.
Cheung also underscored the fact that the use of ICD codes to define osteoporosis is a “major limitation” of the Austrian study.
“The authors should validate the accuracy of the coding, as this is extremely important in a pharmacoepidemiology study, especially [because] BMD is not routinely measured. [Therefore,] accuracy of the coding of osteoporosis is doubtful,” he said.
The study received funding from the Vienna Science and Technology Fund. The authors and Cheung have disclosed no relevant financial relationships.
Ann Rheum Dis. Published online September 26, 2019. Abstract
https://www.medscape.com/viewarticle/919825#vp_1

Quicken Loans Opens Detroit Health Care Facility For Employees

Beginning Tuesday, the 17,000 people who work for Quicken Loans and its affiliated companies will have access to the Rock Health Collective, an employer-sponsored health care facility.
The concierge health facility is powered by Premise Health, a privately held direct health care provider, and occupies 17,000 square feet on the top floor of the First National Building, a downtown Detroit skyscraper.
“This is how we’ll attract great talent. This is how we’ll keep great talent,” Quicken Loans CEO Jay Farner said at the facility’s ribbon-cutting Monday.
The Rock Health Collective’s offerings include the following:

• Primary care.
• Urgent care.
• A full-service pharmacy.
• Behavioral health.
• Physical therapy.
• Chiropractic.
• Wellness coaching.
• Care navigation.

The facility offers services to Quicken Loans employees at lower costs than they would pay in normal provider settings.
For employees with PPO health insurance, copays are zero through the end of 2019 and $5 after that, Pranav Kothari, director of health care strategy for the Rock Family of Companies, said during a tour.
“It’s a tremendous benefit for team members from a cost perspective.”
The patient and health care provider spaces are separate at the clinic, and patient rooms have names such as “Thyme,” “Eucalyptus,” “Jasmine” and “Chamomile.”
The Rock Health Collective was designed by the interior design firm Pophouse, formerly known as dPop.
A relatively small lobby is a reflection of the short wait times patients will experience, said Mike Malloy, chief people officer at Quicken Loans.
“Our goal was to make sure this is a place where people are comfortable. It’s more like a high-end spa” than a doctors’ office, he said.
Evidence suggests that when patients are more at ease, they have better outcomes, said Premise Health President Jami Doucette.
“This is one of the premier wellness centers in the entire country.”
https://www.benzinga.com/news/19/10/14589166/quicken-loans-opens-detroit-health-care-facility-for-employees-a-tremendous-benefit

RMS Medical Products to trade on NASDAQ

Repro Med Systems (OTCQX:REPR) announced that its common stock has been approved for listing and is expected to begin trading on the NASDAQ on October 17 under the current symbol “REPR”.

The Company’s common stock will continue to trade on the OTCQX until market close on October 16.

“This NASDAQ listing is a significant milestone and a reflection of our growth and evolution as a publicly traded company,” said Don Pettigrew, President and CEO.

https://seekingalpha.com/news/3505538-rms-medical-products-trade-nasdaq