Ohio-based Fairfield Medical Center’s fiscal woes tied to a new billing and collection system may push its credit rating on $90 million of outstanding hospital revenue bonds into junk and could trigger a breach of debt-service covenants.
Moody’s Investors Service on Tuesday placed the hospital’s Baa3 rating on review for a downgrade. The rating agency said that the continued operating losses are likely to trigger a technical default triggered by covenant violations on the outstanding debt.
The bonds are secured by a gross revenue pledge of Fairfield Medical Center as well as a lease-hold and sub-lease-hold mortgage pledge.
Fairfield Medical Center ended 2018 with a $22.8 million operating loss, which management attributed to billing and collection issues associated with the installation of a new electronics medical records system. Moody’s said that volume trends, which have already been soft, have been negatively affected by a deliberate slowdown in utilization during the IT conversion.
“The review for downgrade is prompted by Moody’s concerns regarding FMC’s material and larger-than-anticipated decline in operating performance and cash measures based on fourth quarter 2018 unaudited financial statements,” the rating agency wrote. “In addition, based on these unaudited statements, FMC would likely breach its debt coverage covenant upon filing its audited financials.”
Moody’s review will consider to what extent any negative effects from the EMR installation would likely be ongoing and the impact of operating performance and liquidity on covenant cushions. Fairfield expects to file its audited financials for fiscal 2018 as well as second quarter interim statements for fiscal 2019 in the coming weeks.
Moody’s downgraded the hospital to Baa3 from Baa2 last October based on operating losses through the first three quarters. The agency cited pressure from the costs of installing the records system, additional debt from building a $30 million complex, the late 2016 departure of an orthopedic group and high dependence on Medicare and Medicaid, which are 69% of revenue.
Fairfield Medical is a full-service, 222-bed general acute-care hospital in the city of Lancaster, Ohio, in the south-central part of the state.