Ohio-based Fairfield Medical Center’s fiscal woes tied to a new billing and collection system pushed its credit rating on $90 million of outstanding hospital revenue bonds into junk territory.
Moody’s Investors Service downgraded the bonds two notches to Ba2 from Baa3 Friday. The outlook is negative.
“Fairfield Medical Center, a relatively small provider, will face risks amid a challenging transition to a new IT system and in light of its limited financial cushion,” Moody’s wrote in a credit report. “The negative outlook reflects our belief that despite anticipated improvements over 2018, FMC will face challenges as it completes the transition to its new clinical and billing IT system.”
The medical center’s credit had been under review since July over concerns that its fiscal woes could trigger a breach of debt-service covenants.
Moody’s said on Friday that the while the hospital was not compliant with its debt service coverage covenant at fiscal year-end 2018, it has instituted certain measures to address noncompliance and the trustee has concluded that no event of default exists under the indenture.
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.
The downgrade is prompted by Moody’s concerns regarding Fairfield Medical Center’s material and larger-than-anticipated decline in operating performance and cash measures based on fourth quarter 2018 unaudited financial statements.
Moody’s downgraded the hospital to Baa3 from Baa2 in 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 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.
The medical center is a full-service, 222-bed general acute-care hospital in the city of Lancaster, in south-central Ohio.