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Small, nonprofit hospitals struggle

| Friday, April 26, 2013, 12:01 a.m.

The nonprofit hospital industry is facing a number of financial challenges, including falling patient volume and lower payments from the government and health insurers.

But small independent hospitals in particular are at greater risk of financial hardship than their larger counterparts because they lack the resources to deal with economic pressures, according to a report from credit rating agency Moody's.

Five of the six credit-rating downgrades of nonprofit hospitals by Moody's in the first quarter were for smaller hospitals, including Ohio Valley General Hospital in McKees Rocks.

“Almost all rating downgrades were small-sized providers, continuing a trend we have seen for several years,” said Lisa Goldstein, a Moody's analyst. “Small hospitals are unable to absorb the reimbursement pressures facing the industry.”

While the six downgrades in the first quarter was an improvement from the 11 downgrades in the same quarter last year, Moody's analysts were nonetheless troubled by what they're seeing with small hospitals.

“The smaller health-care providers are burdened with several disadvantages, including limited leverage during negotiations with commercial payers and vendors, lack of economies of scale, and over-reliance on a few key physicians,” the Moody's report states. “Looking ahead, Moody's expects more downgrades than upgrades in the second quarter, given that there are already three hospitals currently under review for downgrade.”

Ohio Valley General, a 138-bed nonprofit hospital, was downgraded by Moody's in March to Ba3, from Ba2, citing continued and worsening losses from its operations, a near tripling of unfunded pension liability and its large Medicare population, for which funding is at risk of being cut by the federal government.

Ohio Valley General CEO David Scott, in a written statement, said: “While we face many of the same financial uncertainties that other independent community hospitals are experiencing, we are continuing to improve our operating performance and I believe we are in a good position to respond to the challenges.”

Moody's also has a negative outlook on the hospital, which “reflects the risks of continued volume and market share declines, and operating losses that are likely to continue in fiscal year 2013,” the agency said.

The hospital has $25.7 million of outstanding bonds issued by Allegheny County. Its unfunded pension liability jumped to $17.6 million in 2012, up from $6.5 million in 2011. It has 500 employees.

On the positive side, Moody's noted, Ohio Valley General had 275 days of cash on hand as of Dec. 31, giving it a “good cushion” of cash to debt.

Hospitals large and small across Western Pennsylvania have been dealing with the economic pressures highlighted by Moody's.

UPMC, the largest hospital network in the region, said income from operations dropped to $12.5 million in its most recent quarter, down from $64.7 million the year before, on higher expenses and lower net patient revenue, which was affected by lower reimbursements from insurance companies and Medicare and Medicaid.

Meanwhile, many of the region's community hospitals outside Pittsburgh are worried that a plan by health insurer Highmark Inc. to convert itself into a hospital system will worsen an already tenuous financial situation.

Highmark has said that it will work to strengthen community hospitals once a deal to buy nearly bankrupt West Penn Allegheny Health System is approved by state regulators.

But consultant reports released this month showed that the plan will divert patient volume from at least seven smaller hospitals around Pittsburgh to boost West Penn Allegheny.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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