The Fitch Ratings service has affirmed the rating on approximately $38.3 million Delaware Health Facilities Authority (Nanticoke Health Services) series 2002 bonds at ‘BBB-‘ as the community hospital reversed years of losses.
Nanticoke, Seaford, reported an operating gain of $2.6 million, the first after several years of operating losses, equal to operating margin of 2.1%. Nanticoke’s net patient revenue was $119 million in fiscal 2012 (June 30) compared to $118 million in fiscal 2011.
The federal government has extended a Medicare program that allowed Nanticoke to post the operating profit until September of this year.
Even with the loss of supplemental funding, Nanticoke is committed to reducing overall expenses by $4 million.
The health care system’s liquidity improved due to higher cash-flow generation in 2012 and the $8.5 million of proceeds from the sale of the Lifecare at Lofland Park.
Fitch said the rating could be affected if the health care system does not cut expenses.
On the plus side, the gain from operations was the first since 2005 and the hospital only performance exceeded the budgeted operating income of $4 million.
Fitch reported Nanticoke management is implementing a number of expense reductions with a goal of reducing expenses by $4 million this year. These include a redesign of the employee benefits, which brings benefit expenses more in line with industry standards, elimination of unprofitable service lines, such as occupational therapy, and renegotiation of certain vendor contracts.
Nanticoke continues to focus on physician recruitment and was able to add several specialists, and is also adding primary care physicians at its five outpatient clinics.
The recruitment efforts have resulted in a strong growth, with admissions above the prior year.
The system continues to subsidize the Nanticoke Physician Group which currently employs 27 physicians. The physician network lost $4.6 million in 2012 and the loss of $2.1 million through Dec. 31, 2012 was slightly lower than for a comparable period in the prior year due to improved physician productivity. Management expects to reduce the subsidy of the physician group to approximately $3.5 million in fiscal 2013.
The chief credit concerns remain the limited size of the hospital’s staff and the exposure to changes in reimbursement given the institution’s dependence on governmental sources of revenue (67% of gross revenues for Medicare and Medicaid combined).
Nanticoke Health Services operates 99 acute care beds at Nanticoke Memorial Hospital. The system posted $124.7 million in operating revenue in fiscal 2012.
