DALLAS – Good Shepherd Medical Center, an East Texas public hospital struggling to maintain its Medicare and Medicaid reimbursements, suffered a three-notch downgrade from Standard & Poor's Global Ratings as its financial performance continued to weaken.
"At the time of our most recent review, we noted improvement in balance-sheet metrics related to the monetization of several medical office buildings and improvement in operations related to a performance improvement plan," said S&P analyst Margaret McNamara. "Since then, both operations and balance-sheet metrics have deteriorated, not meeting expectations."
In March, Moody's Investors Service downgraded Good Shepherd to Caa1 from Ba3 and retained a negative outlook, citing "cash-flow losses, significant recent liquidity declines, minimal headroom under covenants resulting in high debt acceleration risk, and a large mandatory tender in a year."
The downgrades and continued negative outlooks by the two ratings agencies affect $150 million in outstanding debt.
In a worst-case scenario, Good Shepherd could lose 45% of its annual revenue derived from Medicare and Medicaid reimbursement, McNamara said.
"We understand that termination of Medicare-provider agreements are rare," she noted. "However, given the potential significant impact this could have on the center's ability to repay its bonds, we will continue to monitor the process."
The federal Center for Medicare & Medicaid Services notified Good Shepherd on June 22, 2015 that the Longview, Texas, medical center did not meet the Medicare conditions of participation.
The hospital's management, with the board of directors' approval, took immediate corrective actions. Hospital officials reported that within two weeks, more than 90% of the CMMS survey findings had been resolved.
"We could lower the rating if management cannot demonstrate meaningful improvement in operations performance, if there is any material deterioration to the balance sheet, or GSMC fails to meet covenants in fiscal 2016," McNamara said. "Given GSMC's current operating profile, a higher rating is unlikely over the one-year outlook period unless and until the center can stabilize operations, generate positive income levels and sustain positive operations over a longer time period."
