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Fitch Ratings gives Meritus a healthy "BBB"

It is intended to guide potential investors who are deciding whether to purchase an organization's bonds

April 11, 2012|By HEATHER KEELS | heather.keels@herald-mail.com
  • A tour of the new Meritus Medical Center in Hagerstown
Joe Crocetta/Staff Photographer

A global ratings agency has praised Meritus Health for its dominant market position and improved operating performance in a financial ratings report released this month.

The report from Fitch Ratings gave the health system a “BBB” rating with a stable outlook.

Meritus Health, formerly Washington County Health System, has maintained the BBB rating since it was first rated by Fitch in January 2008, Fitch Ratings Senior Director Eva Thein said.

Their rating matches that of Standard & Poors, which also recently affirmed Meritus Health’s “BBB” long-term rating with an outlook of stable.

The rating is intended as a guide for potential investors who are deciding whether to purchase an organization’s bonds, Thein said. The BBB rating indicates a low risk of default, she said.

“It’s a good credit rating,” Thein said. “It’s obviously not the highest, but it’s far from being a noninvestment grade rating.”

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Some hospitals are rated as high as AA, but those tend to be large systems with facilities in several states and very strong balance sheets with lots of cash, Thein said.

The recent Fitch report said the main concern with Meritus is a debt burden that is “somewhat elevated,” but it is partially mitigated by the new Meritus Medical Center, which opened in December 2010 and will not require any significant capital investment in the near future.

The high debt burden is to be expected after a project of that magnitude, said Thein, comparing it to an individual’s debt level after taking out a mortgage for a new house.

“We have performed well over the past year while making significant changes, including occupying a new building, changing processes, and changing the strategy for health care delivery into our future,” Meritus President and Chief Executive Officer Joseph P. Ross said.

The new hospital project created $264 million in new debt for Meritus, Ross said.

According to the Fitch report, Meritus has increased its market share  — the percentage of people in its primary service area who turn to Meritus when they need inpatient care — to 83.6 percent, from 81.8 percent three years ago.

Ross attributed the increase to a combination of new services and programs, the new hospital facility and growth of the medical staff.

“Operating performance improved significantly in fiscal 2011 as management implemented a number of expense management initiatives,” the report said.

Those initiatives have included “everything from productivity management to evaluating underperforming assets, to renegotiating contracts with suppliers,” Ross said.

Operating income was reported at $3.6 million in 2011, reversing a $2 million loss in the prior year and exceeding budget, the report said.

The report also praised Meritus for its participation in a new payment system known as “total patient revenue,” which guarantees a predetermined level of revenue regardless of patient volumes.

The report said it is uncertain whether Meritus will continue that system beyond fiscal 2013, but Ross said the health system is planning ahead based on using that system long-term.

“The combination of the revenue predictability stemming from the TPR participation, together with implemented expense reductions will enable Meritus Health to attain the budgeted operating income for fiscal 2012,” the report said. “It is also Fitch’s belief that the moderate capital needs given the new facility will enable the organization to grow its liquidity over time.”

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