Concerned about MedStar Health's pending purchase of troubled Georgetown University Medical Center, bond-rating agency Fitch IBCA has downgraded the underlying rating on about $580 million of the system's bonds.
In downgrading MedStar's bonds to BBB+ from A, Fitch IBCA recognized the Columbia, Md.-based system's "core strengths" and acknowledged that the system has made tough decisions to correct its financial course. However, Fitch IBCA also noted that MedStar, a six-hospital system in Baltimore and Washington, had operating losses of $150 million in 1999 after accumulating losses of $50 million in 1998. For the first eight months of fiscal 2000, operating losses were $59 million.
The Georgetown purchase would entail MedStar's taking on $80 million in debt accrued by the 369-bed hospital in return for a long-term lease. The deal is expected to be completed by July 1 (March 21, p. 4).
Georgetown lost $23.2 million in the fiscal year ended June 30, 1998, on gross patient revenue of $448.2 million, according to the American Hospital Directory.
"That's the major concern," said Anthony LoVaglio, of Fitch IBCA.
The Fitch IBCA decision follows an earlier downgrade by Moody's Investors Services, which affected the underlying rating on $283.5 million in bonds.
But there are positive signs. All Maryland hospitals will receive payment increases of 2% for inpatient care and 3% for outpatient care beginning July 1 under the state's rate-regulated payment system.
Also, MedStar shed about 50 of its 135 physician practices, most too far away from MedStar's hospitals. MedStar also shut down 167-bed Church Hospital in Baltimore at the end of 1999.
In return for that closure and lower rates for 243-bed Franklin Square Hospital Center in Baltimore, MedStar won a 5.5% rate increase for 378-bed Union Memorial Hospital, also in Baltimore, from the Maryland Health Services Cost Review Commission.