A national rating firm has downgraded Akron General Health System’s creditworthiness as it continues talks to be acquired by the Cleveland Clinic and a for-profit hospital chain.
Standard & Poor’s recently lowered Akron General’s rating on existing bonds from BBB to BBB- based on “challenged operations during the past 18 months.”
In an email, Akron General Health System President and Chief Executive Dr. Thomas “Tim” Stover said the rating change “was anticipated given the economic challenges we and many other hospital systems face as a result of market forces and health-care reform.”
The health system posted an operating loss of $13.6 million on revenues of $283.3 million during the first six months of this year, according to Standard & Poor’s.
Akron General’s operating margin for the first half of this year was minus-4.8 percent, compared with minus-0.7 percent during the same time period last year.
The health system, one of the city’s largest employers with more than 5,000 workers, blamed its financial struggles on increased competition in the region and fewer inpatient hospitalizations, surgeries, deliveries and emergency department visits compared with last year, according to the Standard & Poor’s analyst report.
“During the past year, AGHS’ competitors have been able to recruit physicians in the market and opened up freestanding emergency departments,” according to the report.
Akron General leadership has responded by implementing a workforce reduction of 250 full-time employees, according to Standard & Poor’s.
The health system announced in February that it was laying off 132 employees as it dealt with a $4 million loss in 2012 and anticipated future financial challenges from federal health-care reform.
The majority of the remaining positions were eliminated through attrition, according to hospital officials.
A BBB- rating still is considered creditworthy, meaning analysts with Standard & Poor’s think the borrower has the ability to continue to meet its financial commitments. It’s the lowest rating without “significant speculative characteristics.”
Akron General’s rating outlook is stable, in part because of a recently announced tentative deal to sell the health system to a venture between the Cleveland Clinic and Community Health Systems (CHS), a Tennessee-based hospital operator.
“We are pleased that our rating continues as investment grade and our outlook remains stable, which is indicative of the steps we have taken to improve our operations as we pursue a strategic partnership with CHS and the Cleveland Clinic,” Stover said.
The Standard & Poor’s analysts said the stable outlook “reflects our view that as leadership pursues a strategic relationship to improve operations, it is also taking steps to stem the loss from operations.
“However,” the credit analysts added, “if the strategic alliance is not consummated and operations and balance sheet metrics do not improve, we could again lower the rating or revise the outlook to negative.”
Cheryl Powell can be reached at 330-996-3902 or cpowell@thebeaconjournal.com.
