September 16, 2015

UMass Medical Center improves S&P outlook

Standard and Poor's Rating Services has upgraded UMass Memorial Medical Center's outlook from negative to stable, citing improved financial performance and affirmed the Worcester hospital's BBB+ bond rating on Tuesday.

"The outlook revision to stable reflects material improvement in financial performance with profitable audited 2014 results and continued positive, although thin, earnings in fiscal 2015 to date," said Standard & Poor's credit analyst Cynthia Keller.

Standard and Poor's credited the vision of the hospital's new management team with turning financial performance around. Changes in labor stabilized salary and benefit expenses at approximately 2013 levels, according to S&P. Supplemental funding from Medicaid also bolstered revenue in 2014, and the hospital likely would have posted a loss last year without it, S&P said. Another factor in the rating, according to S&P, is UMass Memorial Medical Center's position in the market. The flagship hospital of the UMass Memorial Health Care system, the medical center has 684 acute care beds in Worcester, and is the major teaching hospital of the state's only public medical school. It's also the region's only tertiary care hospital.

A rating of BBB+ indicates that an organization has adequate capacity to repay its loans. A higher rating may be ahead for UMass Memorial Medical Center, according to S&P, once the hospital posts multiyear positive operations and balance sheet ratios improve. To preserve its rating over a two-year outlook period, the agency expects UMass Memorial Medical Center will post breakeven or positive margins sufficient to generate above 2.5 times its debt service coverage, even as the hospital has proposed taking on additional debt.

UMass Memorial Health Care as a system is operating about $18 million ahead of budget in 2015, which closes Sept. 30, Chief Financial Officer Sergio Melgar said in a recent interview. Still, operating margins at the individual hospitals are tight, hovering in the low single digits for the first nine months of the year, according to a quarterly report filed in August.

Early this summer, UMass Memorial Health Care proposed spending $700 million on upgrading the information technology infrastructure at all hospitals, beginning with UMass Memorial Medical Center in July of 2017.

UMass Memorial Health Care CEO Eric Dickson has said the system will make its money back quickly by becoming more efficient through an upgraded IT system. He also credited the staff throughout the system with helping to achieve a financial turnaround in a written statement on Tuesday.

"The continued success of UMass Memorial is inseparable from the invaluable input from our front line staff who have been empowered to raise their hands and voice their opinions on how we can do better. They have led the charge in achieving our improved outlook and making UMass Memorial a better place for our patients and our people by generating and implementing more than 20,000 ideas through our idea system. This has allowed us to work smarter and reduce waste while focusing on the patient as the center of all we do," Dickson wrote.

Image source: Freedigitalphotos.net

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