The money problems at Clayton County's only hospital have taken another hit as a major investment service downgraded its bond rating to "junk" status.
Moody's Investment Service highlighted the troubled finances of Southern Regional Health System in making the move and said in a report issued Sunday that the financial outlook of the medical system remained "negative."
Moody's pointed to the weak financial performance of the health system since 2007. The hospital in Riverdale also suffers due to a high amount of patients on Medicaid, which does not pay the full costs of care, as well as competition from Atlanta hospitals and declines in recent years in patient volumes and surgeries, the report said.
The downgrade essentially identifies the health system as having more risk of paying back money on bonds. Moody's moved the health system down one notch from a rating of Baa3, which is at the bottom of investment grade status, to Ba1, which is at the top of the "speculative grade."
"The downgrade and negative outlook reflect SRHS' continued material operating struggles through nine months [of] fiscal year 2010," the Moody's report said. The hospital's fiscal year runs from July to June.
While hospital officials say the new status will not hamper the center's ongoing financial turnaround, an Atlanta health care consultant said it could make it more difficult and expensive for Southern Regional to obtain loans in the future.
"It's not good," said Michael Rovinsky, president of Integrity Consulting Group of Atlanta. He said such a move can make it harder for a hospital to obtain loans to upgrade equipment and facilities, which can hamper a hospital's ability to attract patients and recover financially. "It can be a spiral."
The downgrade comes at a precarious time for the health system. It is running a $10-million deficit in its $250-million budget and just hired a new CEO. Moreover, county officials last year agreed to back a $40-million bond that prevented the hospital from defaulting on a loan.
"We're pulling away from the brink of collapse," chief financial officer John Schibler said. "We're not out of the water."
But Schibler emphasized that the downgrade will not affect the county-backed $40-million bond. He said the downgrade would come into play should the health system seek bonds for major capital improvements to facilities and equipment, and no major bond projects are being planned.
Schibler said the health system plans to break even on its next annual budget. He said the turnaround is being accomplished largely without cuts to significant services or major layoffs. Patient volumes are stabilizing, he said.
He said more than 20 percent of the health system's patients are on Medicaid. The hospital provides about $40 million a year in unpaid care.
The downgrade arrives as Southern Regional has petitioned the state for permission to start performing open heart surgeries. Adequate financing is among the areas examined by the state.
Schibler said the change in bond status should not affect the application, since the hospital already has the money needed to start up the program.
Kevin Bloye, spokesman for the Georgia Hospital Association, said numerous other Georgia hospitals are facing similar stresses, as the economy leaves more people unemployed and uninsured. A few others may also see their bond rating downgraded, he said.
"Hospitals are seeing a decreasing amount of paying patients," Bloye said.
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