DALLAS – With energy prices continuing to fall, Standard & Poor's placed a negative outlook on Ector County Hospital District in the heart of Texas' Permian Basin oil and gas producing region.
While affirming the district's A-minus credit rating, S&P analyst Karl Propst said that the revised outlook reflects the district's "weakened operating results for fiscal 2015 and our expectation of continued operating pressure at least through fiscal 2016."
The district, headquartered in the Ector County seat of Odessa, issued $47.9 million in 2010 to build a 100,000-square-foot women's and infants' center. The rating has not been lowered since.
"We continue to believe that the current rating is appropriate, but also that it is more vulnerable to a downgrade, particularly because tax support and supplemental Medicaid funding remain key components of the rating," Propst said in the Dec. 9 report.
As a safety-net hospital, the district's Medical Center Hospital is especially vulnerable to cuts in Medicaid, Propst said. Texas has refused federal funds for expansion of Medicaid coverage for the working poor and is awaiting the federal government's decision on whether to extend a Medicaid waiver. The current Medicaid waiver expires in 2016. Texas hospitals receive about $4 billion per year under the Medicaid waiver.
In addition to rejecting expansion of Medicaid, the Texas Legislature also cut Medicaid reimbursements by $75 million in the 2011 session. This year, state lawmakers restored $58 million of the funding. Since 2011, state and local cuts to Medicaid outpatient payments have come to about $100 million per year, according to Texas hospital officials.
As the historical hub of oil and gas production in the Permian Basin of West Texas, Midland and its sister city of Odessa have seen their economies weaken as oil has fallen from more than $100 per barrel in 2014 to less than $36 in recent trading.
According to the latest report from Texas Comptroller Glenn Hegar, sales tax receipts for the hospital district in November were down more than 32% from the same month in 2014. For the year, revenues are down about 14%.
"A material reduction in tax support, supplemental reimbursement, or other factors leading to a significant and sustained deterioration of MCH's operating or balance sheet metrics could prompt us to take a negative rating action during the two-year outlook period," Propst wrote.
