Palos Community Hospital, a 377-bed not-for-profit facility in the Chicago suburb of Palos Heights, will need to improve its operating performance in order to maintain its AA- credit rating, Fitch Ratings warned in a recent report.
Earlier this month, the ratings agency revised Palos' rating outlook to negative
from stable, noting that its operating margin of 3.5% is below similarly rated issuers, which have a median margin of 11.8%. Palos also has a higher debt burden than its peers, at about 8.4% of revenue, compared with a median of 2.6% for other AA- rated borrowers.
The hospital reported an $8.3 million surplus in 2013 on $350.5 million of revenue
. That compares to a surplus of $21.1 million on revenue of $335.7 million for 2012.
Palos, which has closely guarded its independence
in an era of consolidation, also has undergone management turnover in the past year after its longtime leader, Sister Margaret Wright, retired after 35 years in March 2013. She was the last nun to lead
a Chicago-area hospital. The board approved a successor, Edgardo Tenreiro, in November 2013, but he resigned three months later
The transition “raises concern about the stability and direction of the organization,” Fitch said.
In the two months since Tenreiro's abrupt departure, several people
have resigned from the boards governing the hospital and its parent, St. George Corp., reported Modern Healthcare's sister publication Crain's Chicago Business.
But Palos officials said in a statement that the hospital's interim CEO, Dr. Terrence Moisan, has been a respected staff physician for 36 years and a longtime hospital board member. Moisan, they said, “provides the hospital with steadying leadership and shows our patients, physicians and employees that we remain firmly committed to our mission.”
The hospital is undertaking a national search for a permanent CEO and implementing several operational improvements, Palos officials said in the statement.
The hospital does have some advantages in its favor. It operates in an area with a favorable payer mix and its market share has remained steady at 21.7% in 2013 compared with 21.6% the previous year, despite strong competition, Fitch said.
Palos also is finishing an expansion project that is expected to be completed by fall 2015, after which its capital spending should decline. It opened its $340-million Hospitaller Pavilion bed tower in March 2013, on time and 15% under budget.
“We are proud of Palos Community Hospital's strong fiscal record and that we have earned the continued confidence of analysts, who awarded us one of the strongest financial ratings of any healthcare network in the Chicago area,” the hospital said in the statement. “Certainly 2013 was a year filled with change for many healthcare providers, and we are confident that the changes and transitions we experienced over the last 12 months are helping our hospital build toward an even stronger future.”Follow Beth Kutscher on Twitter: @MHbkutscher