A bond credit rating agency has downgraded Eastern Maine Healthcare Systems’ rating to a level that could limit the organization’s ability to obtain credit.
Moody’s Investors Service said the downgrade to junk bond status reflects “a material operating loss and budget shortfall” for the health system’s 2016 fiscal year. According to its 2016 annual report, EMHS experienced an operating loss of $34.3 million during its 2016 fiscal year, which ended in September, compared with a $5.7 million operating loss for the previous fiscal year.
A spokeswoman for Brewer-based EMHS – which operates multiple hospitals in Maine, including Mercy Hospital in Portland – said the “credit rating has no effect on care delivery.”
Moody’s also attached a negative outlook to its rating, a reflection that EMHS is facing “lower than expected liquidity, concurrent with significant risks related to large systems consolidations and migrations.” The change to “Ba1” from “Baa3” lowers the system’s bond rating to below investment grade, commonly referred to as junk bonds. Such a rating means that investment in the organization’s bonds is considered too risky for the typical institutional investor, making it hard for the organization to raise money.
“While management expects long-term benefits from IT initiatives, potential short-term disruptions include productivity declines, collections slowdowns and management distraction at a time when the system faces operating challenges without demonstrated sustainable improvement,” Moody’s said in a statement.
Moody’s is one of the three largest bond credit rating agencies that rank the level of risk investors face when investing in bonds issued by commercial and government entities.
SYSTEM CITES IMPROVEMENTS
EMHS members include Acadia Hospital in Bangor, Blue Hill Memorial Hospital, CA Dean Memorial Hospital in Greenville Junction, Eastern Maine Medical Center in Bangor, Inland Hospital in Waterville and Maine Coast Memorial Hospital in Ellsworth.
EMHS spokeswoman Suzanne Spruce said the health system’s financial situation has improved since the end of the 2016 fiscal year in September.
“We are seeing steady improvement in the performance of the two newest member hospitals (Mercy Hospital, acquired in 2013, and Maine Coast Memorial Hospital, acquired in 2015),” Spruce said. “We are organizing our 1,000-plus employed providers into a single medical group, and continuing to advance our successful population health strategy.
“We are also committed to building a systemwide electronic health record, which will allow for more efficient work flow and increased quality and continuity of care. We are aware that Moody’s considered that to be a risk, however, we will successfully implement this important clinical enhancement.”
EMHS said it is working to improve the performance of its newest member hospitals, which were brought into the system after experiencing multiple years of financial distress.
NO PLANS TO BORROW
Lower credit ratings inhibit an organization’s ability to borrow money at lower interest rates, but EMHS said it isn’t planning to take on any new debt in the near term.
“Obviously, we are disappointed with Moody’s decision,” Spruce said. “The thing to keep in mind is that credit rating has no effect on care delivery, business operations, or our ongoing focus on performance improvement. Additionally, we have no plans to enter the bond market for the foreseeable future. We do look forward to revisiting our rating with Moody’s next year, when we expect to be able to demonstrate improvements to Moody’s satisfaction.”
In a statement, EMHS said that its senior leadership met with Moody’s in New York to talk about recent improvements in its financial performance and present “a solid plan for continued improvement.”
“These are challenging times for health care providers, both in Maine and throughout our nation,” it said in the statement. “EMHS’ proactive five-year strategy is both innovative and forward-thinking.”
J. Craig Anderson can be contacted at 791-6390 or at:
Twitter: jcraiganderson
Send questions/comments to the editors.
