BRADENTON, Fla. — Moody's Investors Service downgraded to Baa1 from A3 the issuer rating of Wayne Memorial Hospital in Goldsboro, N.C., due to "recent weak operating performance and low revenue growth."

Moody's said the outlook remains stable in its May 29 report.

The hospital had $59.4 million of outstanding revenue bonds as of Sept. 30, 2012, according to the most recent audit on EMMA. The bonds were issued by the North Carolina Medical Care Commission.

Wayne Memorial's financial performance softened in fiscal 2013 and remained suppressed through the first six months of fiscal 2014, Moody's said. Revenue growth was a low 0.6% due to sequestration reductions in Medicare, higher health insurance costs, a lower than budgeted case mix, growing bad debt and charity care.

The hospital was out of contract with its largest health insurer for two months at the beginning of fiscal 2014, which continues to weigh on results, Moody's said. Through this period, the operating cash flow margin was 2.9%.

"Management believes it has been conservative in its treatment of claims during the period it was out of network, and that operations will improve significantly by fiscal year end," said analyst Daniel Steingart. "However, there are other factors pressuring operating results, and we do not expect results in fiscal 2014 to return to historical levels of 9% to 11% operating cash flow margins."

Wayne Memorial's market position remains solid and patient volumes have generally been good, and Moody's said the hospital's balance sheet is a stabilizing factor with 180 days cash on hand and 182% cash to debt as of March 31.

Other challenges facing the hospital include a pension plan funded at 82%, and the fact that 60% of its debt is variable-rate demand bonds exposing the hospital to demand and letter of credit renewal risks.

"The stable outlook at the lower rating level reflects Wayne's solid market position as the only acute care hospital in its primary service area, and a strong balance sheet which affords the organization time to implement performance improvement initiatives," Steingart said.


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