Standard and Poor’s Ratings Services downgraded Boston Medical Center’s credit outlook Tuesday from stable to negative due to funding inconsistencies.
“Standard and Poor’s feels that the operating performance of [BMC’s] system overall has been inconsistent year over year,” said Jennifer Soule, director of S&P’s public finance group. “Because of the uncertainty of their revenue stream, along with all-in-all operating performance, we felt that there was a concern about their stability over the next two years potentially.”
If nothing changes in BMC’s finances over a two-year interim, S&P will likely lower the Center’s BBB+ rating to BBB, which means it has “adequate capacity to meet [its] financial commitments, but [is] more subject to adverse economic conditions,” according to the S&P website.
S&P’s rationale for the lowered outlook is based on a significant drop in in-patient volume in the 2012 fiscal year, a history of inconsistent operating performance on the system level, according to a report by S&P Tuesday.
“The negative outlook reflects our view of BMC’s inconsistent operating performance in recent years, inability to sustain system-level operating gains, and uncertainty about the future of its supplemental funding,” according to the report.
This outlook change would be the second one in fewer than five years. BMC’s ranking dropped from A- to BBB+ in January of 2010.
Soule said the drop in in-patient volume was expected, but the loss of three surgeons at BMC during the past year was not as anticipated.
“Their in-patient volume has gone down in observation cases, and that’s a trend we’re seeing across the country,” she said. “Their decline in in-patient though was, on a percentage basis, higher than what we’ve been seeing in the Boston area, and across the country.”
The positions have since been filled and in-patient volume, while still not at an ideal level, is increasing, said Maria Pantages Ober, director of communications at BMC, in an email.
Ober said BMC’s federal and state funding, which makes up a significant portion of its income, has some stability.
“While we may not see commitment of federal and state funds for longer than three years at a time, we are confident that the commitment is there,” Ober said. “The [BMC] system, which includes the Medical Center, the BMC HealthPlan and Faculty Practice Foundation, already is strategically preparing for the new Massachusetts healthcare environment.”
BMC’s current rating is due to its low debt burden relative to other hospitals, and its generally high profit as reported in its financial statements, according to the report.
BMC’s debt burden, the lowest in 2011 at 1.16 percent, has remained low and its excess income was the highest in 2011 with over $76,000, but these figures have not remained consistent over the years, according to the report.
In order to maintain its BBB+ rating, BMC must tap into more resources, namely an unrestricted reserve fund of over $850 million, or prove greater fiscal consistency in the future through some other method, Soule said.
“We’d really like to see stability in that operating performance,” Soule said. “They do have cash in the bank and a low debt burden. If they were able find stability in their revenue stream or prove that they can continue to receive the revenue stream they have, along with profitable operations at a system level … then that would be a reason for them to stay at a BBB+.”
Ober said BMC is dedicated to improving its credit and patient care.
“We are actively working with the state and the federal governments,” she said, “and have taken a number of steps toward operating as efficiently as possible while continuing to remain innovative, be responsive to the needs of both local and national healthcare reform, and deliver high-quality care,” she said.
CORRECTION: Boston Medical Center’s credit rating was originally stable, not neutral, and the outlook change was due to inconsistent operating performance on the system level, not inconsistent finance reporting. The story has been revised to reflect these changes.
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