Lebanon
The Lebanon-based health system also plans to make some $650 million in capital investments over the next five years, one of the ratings agencies said.
Citing Dartmouth-Hitchcock’s strong market share in the region and improvements since it posted a substantial loss in 2016, Fitch Ratings and the Standard & Poor’s Global Ratings also upgraded their outlooks for Dartmouth-Hitchcock Obligated Group, which includes Dartmouth-Hitchcock Clinic, Mary Hitchcock Memorial Hospital, New London Hospital, Cheshire Medical Center and Mt. Ascutney Hospital and Health Center.
Another affiliate, Alice Peck Day Memorial Hospital, is soon to join the group, according to Fitch’s release last week.
S&P brought its outlook up to stable from negative, while Fitch brought its rating to positive. Fitch had placed D-H on a negative watch in August 2016, after D-H posted a $12 million operating loss in the fiscal year that ended June 30, 2016.
In its release, Fitch credited D-H’s “performance improvement plan,” which consisted of $120 million in expense cuts and revenue improvements, with stabilizing operations in fiscal 2017.
As a whole, the D-H obligated group ended fiscal year 2017 with a $13.9 million surplus, according to an unaudited report to bondholders filed in August.
D-H’s operating improvements included increased patient volume, more patients with complex illnesses, workforce reductions and an acceleration of a planned freeze on the organization’s “defined benefit” retirement plan.
Through D-H’s “turnaround efforts, operating results experienced a marked improvement from fiscal 2016 to fiscal 2017 and Fitch expects continued improvement over the next five fiscal years,” the Fitch release said.
The health system’s CEO and President Joanne Conroy said in a Monday news release that D-H was pleased with the ratings agencies’ affirmations.
“We believe it is an acknowledgement of the diligent and focused efforts that the organization undertook over the past 18 months, ensuring our stability as well as remaining steadfast in Dartmouth-Hitchcock Health’s commitment to always provide high-quality patient care in modern facilities throughout New Hampshire and Vermont,” Conroy said.
Over the next five years, D-H anticipates spending a total of $660 million on capital expenses. Those expenses include expanding its EPIC electronic medical record system to all D-H affiliates; developing regional facilities in southern New Hampshire and renovating Mary Hitchcock Memorial Hospital in Lebanon to increase in-patient bed capacity, and modernize and expand surgical facilities, Fitch’s release said.
“It’s a series of projects that they’re using to enhance their regional strategy,” said Margaret Johnson, a New York-based Fitch analyst.
The $660 million will come partly through refinancing the group’s debt, but the bulk is expected to come out of the organization’s cash flow, Johnson said.
There was no more publicly available information about the projects, she said.
Despite these capital expenditures, both Fitch and S&P said the group’s future financial projections, which show gradual improvement over the next several years, seem reasonable based on the cost-cutting and revenue-boosting efforts already instituted, as well as future plans to increase volumes.
S&P said that it could downgrade D-H’s outlook to negative if it reports another operating loss, adds new debt or significantly uses its unrestricted reserves. It also could upgrade the outlook to positive if D-H meets its financial targets and strengthens its balance sheet.
But S&P said it could take a while for D-H to regain the “A+” credit rating it lost in 2016: “A higher rating requires a longer trend of these results.”
Nora Doyle-Burr can be reached at ndoyleburr@vnews.com.
