Mercy Medical in Cedar Rapids cites ‘solid’ rating

Mercy Medical Center in Cedar Rapids has an A2 rating, which Nathan VanGenderen, the hospital's chief financial officer, said is a solid rating for a single, stand-alone hospital.

But in January, Moody's changed the outlook from stable to negative, citing that while the hospital has strong balance-sheet ratios and a manageable capital spending plan, the negative outlook reflects 'significant deterioration in operating margins in fiscal year 2013, with challenges continuing into interim fiscal year 2014.”

'The bond rating does not change day-to-day operations,” Mercy's VanGenderen said. 'But when you see a decline in the financial performance, you have to ask, where do we put dollars in the future? So some area will not receive as many dollars as in the past.”

VanGenderen said the hospital is shifting funds away from the emergency room, which is experiencing lower volumes of patients due to a concerted effort that focuses on primary care, and moving them to its clinics, ambulatory care and home care.

This is a trend Moody's has seen nationwide. The ratings agency said in April 2014 that expense growth is outpacing revenue growth, 4.6 percent to 4.1 percent, respectively - in part due to hospitals seeing larger outpatient volumes, which bring lower reimbursements.

This is certainly the case for Mercy. A look at its nonprofit tax forms, known as 990s, show that the in fiscal year 2012 (July 1, 2011 to June 30, 2012) the most recent year of available data, the hospital reported revenue of more than $290 million, a 4.2 percent increase from fiscal year 2011.

Mercy's reported expenses of $273 million in fiscal year 2012, a 6 percent increase from fiscal year 2011, and larger than the national average. Even still, the hospital had a net income of $21 million in fiscal year 2012.

The 990 forms were compiled by GuideStar, a not-for-profit that gathers and disseminates information about every single IRS-registered nonprofit, including hospitals.

Mercy's operating margins also have deteriorated, Moody's said, pointing out in fiscal year 2013, its operating margin was -3.6 percent.

The hospital has $118 million in outstanding debt. That number seems large, VanGenderen said, but financing growth with debt is more responsible when taking on big projects, including the implementation of Mercy's electronic records system and the construction of its state-of-the-art Hall-Perrine Cancer Center, which opened in July 2012.

VanGenderen said the average A2-rated hospital has a 37 percent debt-to-equity ratio - the proportion of equity and debt a company uses to finance its assets - while Mercy has a 26 percent ratio. It also has more days of cash on hand than the average A2-rated hospital, 260 days versus 210.

Much of the increase in expenses can be attributed to the purchase and implementation of its federally mandated electronic medical record system, VanGenderen said - a more than $50 million investment. The technology will benefit the hospital in the long run, he said, but it was a massive undertaking.

Comments: (319) 398-8331; chelsea.keenan@sourcemedia.net