Standard & Poor’s has revised its outlook on John Tolfree Health System’s $12.3 million of debt issued in 1999 for West Branch Medical Center to negative due to declining volume levels.

The credit is rated BB, two notches below an investment-grade level.

West Branch has faced declining volumes over the past few fiscal years due to the departure of physicians to a competing hospital.

The BB rating reflects persistent operating losses that have worsened through fiscal 2009 contrary to previously stated goals to reach the break-even mark; a drop in net patient revenues for fiscal 2009; declining volumes; and a debt-service covenant violation for fiscal 2009 for the obligated group, analysts wrote.

Standard & Poor’s said the rating is supported by the hospital’s sound market position as a sole community provider facility with a 53% market share and an adequate liquidity position for the rating level with of 73 days of cash on hand through March 31. West Branch has also recently implemented cost controls that management expects will help lower operating losses in fiscal 2010.

“The negative outlook reflects our concern about the hospital’s recruiting challenges, declining volume, and operating losses,” wrote Standard & Poor’s analyst Antionette Maxwell. “We expect management will be able to increase revenue through volume growth primarily on outpatient services, while curbing costs to minimize operating losses.”

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