Chicago - Moody's Investors Service yesterday lowered the bond ratings of six Illinois health care institutions, affecting $262 million of un-enhanced debt.
Christine Ballantyne, an assistant vice president in the health care ratings group at Moody's said that the six institutions experienced a "deterioration of financial performance" due to industrywide trends, including highly competitive market conditions and increasing pricing pressures from managed care contracts.
Downgraded were: Columbus-Cabrini Medical Center in Chicago, formerly known as Columbus-Cuneo-Cabrini Medical Center, to Baa from Baa 1; Mercy Hospital and Medical Center in Chicago, to Baa 1 from A; Methodist Health Services Corp. in Peoria, to Baa 1 from A; Proctor Community Hospital in Peoria, to Baa from A; Riverside Health System and the Riverside Senior Living Center in Kankakee, to Baa 1 from A; and St. Elizabeth Medial Center in Granite City, to Baa from Baa 1. The downgradings were part of a review of Illinois health care credits.
Four of the institutions issued their debt through the Illinois Health Facilities Authority. Columbus-Cabrini Medical Center issued its debt through the Illinois Development Finance Authority, and St. Elizabeth Medical Center issued its bonds through Granite City.
In a press release, Moody's said it lowered Columbus-Cabrini's debt rating partly because of a "significant decline in cash levels." The decline was caused by uncollected receivables and the cost of the center's acquisition of St. Anthony's Hospital in Chicago late last year.
The debt rating for Mercy Hospital and Medical Center was downgraded because of losses stemming from "inadequate malpractice insurance reserves and uncertainties related to senior management turnover and current vacancies," Moody's said.
Ballantyne said that the downgrades of the two Peoria institutions are significant because they reflect the loss of managed care contracts from Caterpillar Inc., the area's dominant employer. Methodist Health Services and Proctor Community Hospital lost the managed care contracts to OSF Healthcare System, the only other health care institution in the city.
Ballantyne noted that the "dramatic" impact of the managed care changes in Peoria could be duplicated in other markets that have dominant employers.
"It is something we probably will be seeing in the future. A change in a managed care contract will have an impact on a hospital," Ballantyne said.
Moody's revised Riverside Health System's rating because of "lower profitability associated with managed care pricing pressures" and losses from the startup of a retirement center.
St. Elizabeth Medical Center had its rating cut because of a "significant decrease in its cash position and marginal profitability" due to a decreasing patient load, Moody's said.
LLoyd Vaughan, chief financial officer for Columbus-Cabrini, said that hospital officials were disappointed with the downgrade of the institution's $53.4 million of debt. Vaughan said that the hospital experienced a significant turnaround in 1993 and recouped its investment in St. Anthony's this year.
David Schroeder, chief financial officer for Riverside Health System, said he believes that the downgrading of its $28 million of debt is a temporary setback.
Schroeder said that Riverside's expansion into nursing home care, which so far has resulted in losses, will be an asset in the long run.
"In terms of broader appeal beyond acute care, it is definitely where you want to be," Schroeder said.
Officials from the four other institutions did not return phone calls.
Moody's also confirmed unenhanced ratings for 23 Illinois health care institutions, affecting $1.53 billion of debt. The debt ratings for Northwestern Memorial Hospital in Chicago, West Suburban Hospital Medical Center in Oak Park, Ingalls Health System in Harvey, and OSF Healthcare System in Peoria are under review pending recently scheduled bonds sales or restructurings, Moody's said.
