Archive for Tuesday, September 5, 2000

LHM bond rating downgraded because of losses

Hospital officials are not alarmed, insisting services and expansion plans will not be affected

September 5, 2000

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Increasing debt and mounting losses at Lawrence Memorial Hospital have resulted in a downgrade of the hospital's bond rating.

Moody's Investors Service has lowered the hospital's bond rating to a midlevel Baa1. LMH had been rated an A3, which is the highest rating possible.

Hospital officials say the rating drop is not a surprise and nothing to be alarmed about.

"It's common for hospitals our size to have that kind of a rating," said Gene Meyer, LMH chief executive officer. "Previously we probably were (rated) higher than we should have been."

The lowered bond rating will not affect hospital services or expansion plans, Meyer said.

Bonds rated A3 are judged to be of the best quality, according to Moody's. Bonds with a Baa1 are considered to be of medium grade. A medium grade means interest payments and principal security are considered adequate.

Moody's offices in New York were closed this weekend for the Labor Day holiday, but an earlier release noted that accounts receivable and unanticipated claims liabilities caused a weakened cash position at LMH.

One of the main factors leading to the downgrade was the closing in 1999 of the hospital's HMO, Community Health Plans of Kansas. The hospital absorbed a $3.5 million loss from a large increase in claims and ended the year $1.3 million in the red.

Also taken into consideration was the hospital's debt of $34.1 million at the end of fiscal year 1999. Much of that is from four bond issues dating from 1994.

The last bond issue in 1999 was for equipment and remodeling, according to Simon Scholtz, LMH chief financial officer.

The new rating will not affect interest rates on the remaining outstanding bonds. If LMH were to borrow more money through a bond issue, the interest rate would probably be a quarter of a percentage point higher, Scholtz and Meyer said.

"At this point we have no plans to go back and borrow anymore," Meyer said.

LMH is working to improve its accounts receivable, or money owed by patients and insurance companies.

Accounts receivable at one time reached a peak of $36 million but have now dropped to $26 million, Scholtz said. The hospital's goal is to decrease that to a more acceptable average level of $21 million, he said.

"We've made tremendous progress in that area," Scholtz said. "We hope to get down to $21 million in another few months."

Moody's noted that LMH has improved its operations and taken steps to successfully renegotiate managed care contracts.

LMH also is helped by its dominant position in the hospital market, according to Moody's. It controls an 80 percent market share and benefits from being the only primary provider of inpatient care in the growing Lawrence service area.

In 1999, inpatient admissions increased 3.6 percent compared with 1998, while outpatient surgeries increased 12.9 percent, hospital records show. Moody's and LMH officials expect the number of patients to continue to grow.

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