Moody’s gives negative outlook to hospital industry
By Wayne Allen
PDT Staff Writer
Moody’s Investor Services has given Southern Ohio Medical Center (SOMC) and King’s Daughters Medical Center (KDMC) negative outlooks citing debt and other factors of both organizations.
On Wednesday, Moody’s affirmed the A2 rating assigned to SOMC’s $144.4 million of outstanding bonds.
In the announcement about SOMC, Moody’s states “The outlook is revised to negative from stable. The revision of the outlook reflects a new competitive landscape in SOMC’s immediate service area, the organization’s more moderate financial performance is fiscal year (FY) 2013 and a FY 2014 budget that anticipated break-even operations and a reduction in liquidity.”
In the announcement, Moody’s outlines the strengths and challenges SOMC is facing.
Strengths include a “strong balance sheet ratios with 291 days cash on hand as of June 30, 2013, up from 273 days cash on hand. Patient volumes showed favorable growth in FY 2013, due in large part to SOMC’s opening of a geriatric psychiatric unit in late FY 2012. Combined inpatient admissions and observation stays were up nearly 7 percent in FY 2013.
SOMC maintains distinctly leading market share in Scioto County with 70 percent of inpatient market share in FY 2012 and the hospital is designated a sole community hospital by Medicare, which results in higher reimbursement.”
For challenges facing SOMC, Moody’s states, “SOMC experienced a decline in financial performance in FY 2012, as expense growth exceeded revenue growth. Recruitment and retention of physicians is a major challenge for SOMC. The presence of King’s Daughters Medical Center’s new 10-bed hospital in SOMC’s immediate service area presents a new competitive risk and the potential for market share loss.”
According to Moodys.com an, “A2 rating is an upper-medium rating signifying that the recipient is relatively low risk.”
In August, Moody’s also gave KDMC an A2 rating, which was a downgrade from an A1 rating.
“The outlook is revised to negative from stable. The downgrade to A2 and the negative outlook stem from material operating losses in FY 2013 driven by volume declines, insurance payment delays, and new expenses as management seeks to improve financial performance in a challenging operating environment,” Moody’s wrote. “The downgrade to A2 from A1 is attributable to KDMC’s material operating losses through nine months of fiscal year (FY) 2013, driven by volume declines, payment delays from managed care organizations, and new expenses related to KDMC opening an outpatient facility in the secondary service area. These challenges are offset by KDMC’s leading market position as a comprehensive tertiary regional referral center with limited competitive pressures and an historically strong balance sheet. The negative outlook reflects challenges to implement multiple comprehensive strategic initiatives simultaneously in an effort to stabilize operating performance while continuing to face volume pressures in a difficult operating environment.”
Moody’s outlined KDMC’s situation by the numbers.
“Operating performance fell to a $15.6 million loss through nine months of FY 2013, compared to a $6.3 million gain a year earlier. With FY 2013 representing the fifth year of declining admissions; inpatient admissions fell by 6.2 percent, cardiac catheterization procedures fell 45.5 percent, observation stays fell 23.8 percent, and total surgeries fell 10.9 percent through nine months of FY 2013 compared to the same period a year prior. Combined admissions plus observation stays fell 13.4 percent through nine months interim FY 2013.”
Some numbers painted a positive outlook for KDMC.
“KDMC is a tertiary regional referral center with a leading 39 percent market share (management provided data) in the six-county primary service area (Kentucky and Ohio) with limited local competition, and a 10.9 percent market share in the six-county secondary service area (Kentucky and West Virginia). Market share has grown over the past decade. Substantial capital projects are behind the system, including installation of health information technology (IT) systems and construction of an outpatient facility that opened in FY 2013 in Portsmouth, OH; no current plans for additional debt allows KDMC to rebuild balance sheet.”
Moody’s has not given a positive outlook for the not-for-profit hospital industry.
“Moody’s outlook for U.S. not-for-profit hospital sector is negative… Since sector outlooks represent our forward-looking view on conditions that factor into ratings, a negative outlook indicates that negative rating actions are more likely on average.
Our sector outlook for not-for-profit hospitals remains negative reflecting the challenging operating landscape over the next 12-18 months as patient volumes shrink and revenue growth slows. The negative outlook also reflects the struggle for hospitals to reduce costs while making investment necessary to adjust to changing reimbursement methodologies brought on by the Affordable Care Act (ACA) and the demands of other industry participants such as insurers and employers.”
For more information about moody’s visit Moodys.com.
Wayne Allen may be reached at 740-353-3101, ext. 228, or firstname.lastname@example.org. For breaking news, follow Wayne on Twitter @WayneallenPDT.
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