Moody's Reports Nurse Strike Will Have Credit Negative Effect

The temperature is rising in the dispute between the Minnesota Nurses Union and Twin Cities Hospitals. The union said it will begin an open-ended strike on July 6 if a deal is not reached with six local hospital systems.

The 12,000-member union is threatening what would be the largest nursing strike in the nation's history. Doing so will have a "significant credit negative" effect for the organizations, warned independent credit rating company Moody's Investor Service in a report this week.

Moody's says a one-day work stoppage on June 10 brought associated costs with transporting, housing, and training the more than 2,800 temporary nurses who filled in for the strikers. Postponing non-emergency procedures increased the lost revenues.

"A long strike could have negative rating pressure on the hospitals who have striking nurses," says Moody's analyst Sarah Vennekotter. "The cost of transporting, housing, and training all those temporary nurses to replace the striking nurses could have a significant effect on their operating margin. In addition, over the longer term, the provisions that the nurses union is asking for could also negatively affect the credit ratings with the salary increases they are proposing, involving changes to their benefit plan and the other provisions they are seeking."

Vennekotter warns that a lengthy strike's costs will put huge rating pressure on the health systems. In addition, decreased patient volume will combine with the rising utility and supply costs to reduce operating margin. Moody's says four of the affected hospital systems generated $7.2 billion in revenue and $284 million in operating income in 2009. If expenses were to rise by just 1% while revenues remained unchanged, Moody's predicts operating income will fall 24%.

Meanwhile, the Minneapolis Star Tribune reports division among Twin Cities nurses over whether the strike is appropriate.

The union told the newspaper that more than 87% of its members voted for a strike. The union demands fixed nurse-patient ratios, 3% annual pay raises, and no cuts to pension benefits.

However, many nurses disagree with the union's decision to call a strike. They argue that patients are better served with flexible, acuity-based staffing rather than fixed ratios, and that in times of financial strain, cut backs are to be expected.

The Star Tribune reports a local nurse started a blog to provide a voice for those who are dissatisfied with the situation, and many nurses are using it to counteract the union's claims of unsafe staffing. On its first day in operation—the same day the strike was announced—the blog received 5,000 page views.

Union and hospital officials are set to return to the negotiating tables this week in an effort to reach an agreement before July 6 arrives. All sides are hoping for agreement.

Moody's says that even non-union hospitals will face financial pressures if a strike is called. As affected hospitals decrease census and limit procedures, non-union hospitals will face capacity challenges—and the need to bring in temporary nurses—as they struggle to meet the Twin Cities population's healthcare needs.