ATLANTA -- Recent changes in federal Medicaid reimbursements to Alabama will fiscally strain hospitals in the state, possibly leading to downgrades, a Moody's Investors Service analyst said last week.
The assessment came after the federal government, beginning Oct. 1, began phasing out its "disproportionate share" Medicaid payment program to states whose hospitals treat a large share of poor citizens. Like other states participating in the program, Alabama had received the supplemental payments, which were then passed on to both private and public hospitals treating indigent patients.
Under new federal guidelines applicable to Alabama, Medicaid disproportionate payments, with a few exceptions, continue only for public hospitals, and even then under a reduced schedule.
"In the past two years Alabama hospitals have received generous reimbursement for treating indigents," said Bruce Gordon, a Moody's assistant vice president. "This will help them weather the storm as those payments are cut back," he said.
"But in the longer term, it is difficult to see how the cutbacks will play out from a credit perspective as profitability at the hospitals is reduced," Gordon added. "We do not rule out downgrades."
For the time being, the analyst noted, Moody's has confirmed all 12 ratings on the unenhanced debt of the hospitals it evaluates in Alabama. The affirmed ratings cover a total of $360 million of debt at five private and seven public hospitals.
Gordon said that in addition to the cushion built up by disproportionate payments since 1992, there are other factors in Alabama that currently work in the hospitals' favor. The factors, he said, include stable medical markets in the state, and the lack of sizable number of investor-owned facilities.
Gordon declined to specify which issuers would feel the most pressure under the new rules. But, in general, large private hospitals in Alabama's cities --- Which are no longer eligible for disproportional share payments -- are likely to be pinched the most, he said.
Within the next several weeks, Moody's will publish a special report detailing the fiscal impact on all 12 hospitals, Gordon said.
According to Michael Lewis, director of internal audit at Alabama's Medicaid agency, the state last year received $417.5 million in federal Medicaid disproportionate share payments. Under the new formulas, this will be reduced to about $360 million, for a loss of about $60 million.
Given the financial strain the cutback would impose on both the state and hospitals, state officials have begun to consider instituting a managed-care system that would work in conjunction with federal Medicaid disbursements, Lewis said. He doubted, however, that a managed system would be initially imposed on a statewide basis.
The private Alabama hospitals rated by Moody's are: Baptist Medical Center in Montgomery, with $15.6 million of A-rated debt; Carraway Methodist Center in Birmingham, with $62.9 million of Baal bonds; Jackson Hospital and Clinic in Montgomery, with $26.4 million of A-rated bonds; Medical Center East in Birmingham, with $5.2 million of A-rated debt; and Walker Regional Medical Center in Jasper, with $19.7 million of Baal-rated bonds.
The public hospitals are: Boaz-Alberville Medical Center, with $18.6 million of Baa rated bonds; Cullman Medical Center, with $48.2 million of Baa bonds; DCH Regional Medical Center in Tuscaloosa, with $38.6 million of A1 bonds; Eliza Coffee Memorial Hospital in Florence, with $21.5 million of A-rated bonds; Guntersville-Arab Medical Center, with $13.4 million of Baa-rated bonds, and the University of Alabama Medical Center in Birmingham, with $73.5 million of Aa-rated bonds.