Palos Community bounces back from difficulties

Palos Community Hospital may be rebounding after a period of several difficult months that included the resignation of its CEO and a drop in its credit rating outlook.

The 377-bed not-for-profit hospital in the Chicago suburb of Palos Heights reported a $16.3 million surplus on $182.2 million in revenue for the first six months of 2014 (PDF). That's up significantly from a loss of $2 million on $164.1 million in revenue for the year-ago period. While expenses stayed flat, net patient and other revenue, as well as investment earnings, were all up a total of 11.05% from the prior year, resulting in an operating margin of 8.8%.

Palos' margin is still below the median margin of 11.8% for similarly rated issuers, but it's an improvement from its negative operating margin this time last year. That's particularly good news for a hospital that Fitch Ratings put on watch this year. In April, the ratings agency revised Palos' rating outlook from stable to negative, citing weak operating performance and instability of the hospital's board and management. In addition to the resignations of five of its board members, Palos also saw its new CEO, who came on board in November 2013, resign just three months later.

The turnover “raises concern about the stability and direction of the organization as it attempts to improve operating performance and complete its campus project,” Fitch said in its April report.

Palos is in the midst of a campus renovation project that included the opening of a $340 million bed tower in March 2013. That portion of the project was completed on time and 15% under budget. The remainder of the expansion is expected to be finished in the fall of next year, at which time capital spending should drop.

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