UMass credited for its stability
By Aaron Nicodemus TELEGRAM & GAZETTE STAFF
WORCESTER — Standard & Poors has upgraded the bond rating for UMass Memorial Health Care for the first time in a decade, citing the nonprofit’s “solid financial operations over the past five years.”
S&P raised UMass Memorial’s bond rating from BBB to BBB+, one grade below the top ‘A’ bond rating.
“We based the higher rating on UMass Memorial’s solid financial operations over the past five years, under a stable management team that has been in place since 2002,” wrote S&P in its announcement of the rating upgrade, “and its status as the major teaching hospital for the state’s only public medical school —University of Massachusetts Medical School — and as a safety net provider for the area.”
Although S&P mentions the medical school in its release, the ratings upgrade only applies to UMass Memorial Health Care. The medical school and the hospital operate financially as two separate entities and are each rated separately.
In upgrading the hospital’s bond rating, S&P noted UMass Memorial’s “dominant market share over the large central Massachusetts region” and “growth in all inpatient and outpatient service lines, except for home health, which has declined in recent years.” Patient volumes at the hospital have increased by just over 5percent this year, according to John G. O’Brien, president and chief executive officer of UMass Memorial Medical Center and UMass Memorial Health Care.
The upgrade, Mr. O’Brien said yesterday, is “another indication that our strategy is effective, that we are establishing the UMass Memorial brand as something that is important to the entire community.”
S&P did note an area of concern with regard to cuts to Medicaid and other state funding sources, but noted that UMass Memorial “has strategically managed its operations in recent years without a reliance on supplemental funds.”
Overall, the hospital’s financial outlook is stable, S&P said.
“The stable outlook reflects UMass Memorial’s solid market position, strong volume increases, and its ability to improve its operating and excess margins, as well as debt service coverage, at a time when many comparable hospitals are struggling to generate a positive bottom line,” S&P wrote in its release.
In a letter to UMass Memorial employees, Mr. O’Brien also noted that the bond upgrade came during a particularly difficult financial environment for hospitals and medical centers across the country. He noted that S&P did not upgrade the bond rating of any hospital or medical group in the country last year, while downgrading 18 of them.
“So the good news is not just that we have been upgraded, but that it comes at a time when the overwhelming majority of systems are going in the opposite direction,” he wrote.
The nonprofit’s chief financial officer, Todd A. Keating, said that the bond rating upgrade will save UMass Memorial money when it seeks to borrow money, although he could not say with certainty how much until the bonds are actually sold.
UMass Memorial currently has a $51 million operating surplus, which is lowered to $24 million after factoring in investment losses suffered by the nonprofit so far this year. For the previous fiscal year that ended Sept. 30, 2008, UMass Memorial had an operating surplus of $26 million.
“More and more patients are seeing UMass Memorial as their patient home,” Mr. O’Brien said. “The staff see this also as a validation of their hard work.”
UMass Memorial Health Care employs 12,800 people at its various campuses in Worcester, as well as at Clinton Hospital, Marlboro Hospital, Wing Memorial Hospital in Palmer and the HealthAlliance system in Leominster and Fitchburg.