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Credit ratings reflect Forum’s problems
Fewer admissions and outpatient procedures, particularly at Northside, are hurting Forum Health.
YOUNGSTOWN — The likelihood of Forum Health’s filing for bankruptcy is high if the hospital system cannot “achieve targeted savings” in upcoming union contract negotiations, according to Moody’s Investors Service.
Moody’s and Standard and Poor’s, major investment research and credit rating firms, recently downgraded Forum’s bond rating: Moody’s from B1 to B3, and Standard and Poor’s, from BB to B+.
Also, both placed Forum on a watch list for further downgrading, and Standard and Poor’s said an even lower rate was avoided only because of Forum Health’s improved financial situation in 2007.
The lowered bond rating is significant because it makes it more difficult (a higher risk for investors) and expensive (a higher interest rate) for Forum to borrow money. The bond ratings affect about $146 million in long-term bond debt.
Moody’s describes its B rating as speculative and subject to high-risk credit.
The firms adds the numerals 1, 2 and 3 to the letter, 1 ranking at the higher end of the classification and 3 at the lower end. Moody’s highest rating is Aaa; its lowest, C.
S P’s B rating indicates vulnerable financial security. The plus places Forum at the top of that category.
The S P’s report does not refer to bankruptcy, but it does state that though Forum Health improved financially during 2007, the outlook for sustaining the financial turnaround is not good.
The S P report gives several reasons for the pessimistic outlook: unexpected operating losses in the first four months of 2008; and the need to renegotiate organized labor contracts, which it considers key to the long-term financial viability of the organization.
Moody’s takes much the same tack, noting that about 75 percent of Forum’s employes are union members, compared to a much smaller percentage at Humility of Mary Health Partners, Forum’s major competitor.
Both reports also point to other challenges to Forum’s permanent financial turnaround.
Moody’s said Forum has suffered significant long-term declines in admissions and outpatient procedures, particularly at Northside Health Center in Youngstown, where it said admissions were down 20 percent in 2007 and 28 percent through the first four months of 2008.
Though Trumbull Memorial Hospital in Warren was profitable in 2007, despite slight declines in admissions and outpatient surgeries, and admissions that are up 9 percent through the first four months of 2008, it was not enough to bring Forum into the black.
The hospital system reported an operating loss of about $5 million in the first four months of the year, and is below budget by about $9 million, Moody’s said.
Other issues hurting Forum Health are competition from HMHP, which opened a new hospital in Boardman; the loss of physicians, who are competing for outpatient services, including the loss of a group of oncologists who had referred patients to both Northside and TMH; an economically weak service area with declining population and below-average wealth levels, which has resulted in increased numbers of self-pay and charity-care patients, and lack of capital to invest in facilities and technology needed to remain competitive.
Despite the gloomy reports, Lowell Johnson, Forum Health chief executive officer, said the last thing he wants to happen is bankruptcy.
He still holds out hope that the system can be held together and find its way out of its financial troubles.
“I’m fiercely against bankruptcy, based on personal experience,” Johnson said.
He said he has been through it three times in the last 20 years, during which he has been involved in 25 hospital financial turnaround efforts.
“Every time, the employees, the doctors and the communities got hurt,” Johnson said.
alcorn@vindy.com