D-H Downgraded By Credit Rater

Valley News Staff Writer
Published: 8/30/2016 12:05:12 AM
Modified: 8/30/2016 12:05:14 AM

Lebanon — A major credit rating firm has lowered its grade for the financial health of Dartmouth-Hitchcock from “A+” to “A” and plans to continue to scrutinize the health system’s financial performance.

“Expectations for continued improved profitability were not met and liquidity has declined,” Fitch Ratings said in a note released on Friday that announced the downgrade in D-H’s credit.

The action followed D-H’s posting two weeks ago of an unaudited financial statement that showed an operating loss of $23 million by D-H’s main hospital and clinic network for the quarter that ended June 30. That erased — and then some — a $10 million operating surplus accumulated over the first three quarters of the fiscal year.

Citing “the rapid and dramatic deterioration in D-H’s operating performance,” Fitch also placed a “negative watch” on D-H’s credit reflecting “concern about further negative rating actions.” Representatives of Fitch will pay an autumn visit to D-H to meet with members of senior management.

On Friday, S&P Global Ratings, the other major rater of D-H’s credit, also placed a negative credit watch on the health system’s bonds.

That move was prompted by the disclosure of D-H’s fourth-quarter operating loss, S&P analyst Jennifer Soule said in a report issued on Friday. It also was a reaction to “the unexpected departure of Dartmouth-Hitchcock’s (chief financial officer) and uncertainties about the system’s ability to restabilize its financial performance in fiscal 2017 following the financial challenges it experienced implementing a new billing system during fiscal 2016,” she said.

Soule said that based on current information she did not expect D-H’s credit to fall below “A-,” which is the lowest rung of the “A” category.

Both Fitch and S&P use ratings scales ranging from “AAA” to “D,” and award “A” ratings to borrowers who are considered strong financially but who are regarded as more vulnerable to adverse business or economic conditions than the strongest borrowers.

On both companies’ scales, ratings below BBB are considered speculative or junk.

D-H Chief Executive James Weinstein disclosed the ratings actions in a 1,300-word interview with an in-house newsletter that was circulated to D-H employees Friday. He said the deficit, while unexpected, was “allowing us to reassess and verify that we have the right systems in place and that those systems are providing the information we need to run our day-to-day operations.”

But that won’t happen immediately, according to Weinstein. “We have every confidence that by the end of the next calendar year, we will have moved past our undesirable financial performance, which was caused in part by an error while upgrading our business system infrastructure,” he said.

In response to questions on Monday, D-H spokesmen pointed to Weinstein’s statement that the health system’s “accelerated performance improvement efforts are focused on regaining our A+ with a positive outlook, while preserving quality.”

D-H spokesmen also sent a copy of an Aug. 9 memo in which Weinstein announced the health system’s trustees’ approval of “a $12 million merit-based wage package for FY 17, effective with the Oct. 28 paycheck.”

The program would cover “hourly and salaried staff, including associate providers and nurses” hired prior to April 1, but employees at the top of the salary range for their job would receive only a one-time payment, and physicians, residents, fellows and employees of affiliated hospitals would not be part of the program, according to an explanatory memo from John Malanowski, D-H’s chief human resources officer.

D-H last awarded merit raises in 2014, according to spokesman Mike Barwell.

In the interview, Weinstein emphasized D-H’s role and accomplishments in reforming New Hampshire’s mental health and addiction care services, and the health system’s commitment to improving its financial performance without resorting to “doing more tests and performing more surgeries and procedures” in order to boost volume and revenue.

“We never think about money when we care for our patients,” Weinstein said. “The fact that finances are part of medicine is ... a necessary evil.”

Rick Jurgens can be reached at rjurgens@vnews.com or 603-727-3229.

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