Fitch Affirms Cass Regional Medical Center, Missouri, at 'BBB-'; Outlook Stable
2009-01-12 20:14:02 -
Fitch Ratings affirms the $50 million Cass County, Missouri hospital revenue bonds, series 2007 (Cass Medical Center Replacement Project) at 'BBB-'.
The 'BBB-' rating is supported by Cass Regional's critical access hospital designation (CAH), its operating profitability, favorable market characteristics, community tax support, and its management agreement with the Hospital Corporation of America (HCA, rated 'B' by Fitch). Cass Regional received CAH designation in June 2005, which provides the hospital enhanced Medicare and Medicaid reimbursement (both payors make up a combined 53% of revenues). After receiving the designation, Cass Regional's operating margins have continued to be positive resulting in an 8.3%, 8.9%, and 4.4% in fiscal year 2007 (FY07), FY06, and FY05, respectively. Recent operating performance reflects favorable reimbursement because of its CAH designation and favorable commercial contracts along with solid outpatient volume growth. The positive operating performance has led to sound liquidity resulting in days cash on hand of 170.6 days, comparing favorably to the category median of 123.5 days. Cass Regional's revenue base of $34.6 million in fiscal 2007 is average as compared to other CAHs in Fitch's portfolio; however, the hospital's size remains small and inherently more vulnerable with limited flexibility to absorb adverse events. In addition, the scope of the capital project heightens Cass Regional's exposure to construction risk.
In 2007, Cass Regional maintained a leading market share of 25% (next closest competitor is Cass Regional's sponsoring hospital - HCA's Research Medical Center located in Kansas City at 14.1%) on an inpatient basis and 54.7% (next closest is HCA's Research-Belton Hospital located 16.4 miles away at 8.5%) on an outpatient basis in its primary service area. Cass Regional receives ad valorem property tax monies from the county (approximately $1.7 million in 2008) that have been annually dedicated for debt service. Finally, by virtue of its long-standing relationship with HCA, Cass Regional has directly benefited on a revenue and expense basis as HCA has leveraged its market presence to secure favorable payor rates and has passed along supply cost savings through its purchasing leverage with vendors.
Credit risks include Cass Regional's high debt burden and leverage, small revenue base, and regulatory risk associated with future changes in reimbursement from governmental payors and/or changes in the CAH regulations. Although Cass Regional's debt profile is significant, it plans no further debt upon completion of the new replacement hospital. Leverage is high as maximum annual debt service (MADS) as a percentage of revenue is 8.2% compared to Fitch's category median of 3.2%. Further, debt to capitalization is 60.6%, comparing unfavorably to the median of 47.1%.
The Stable Rating Outlook is primarily based on Cass Regional's CAH designation, which provides revenue stability that should allow Cass Regional to continue to generate operating margins in excess of 5% over the near term. Furthermore, Fitch expects that upon completion of the replacement project, Cass Regional will strengthen its market position and allow it to grow into its current debt burden.
Located in Harrisonville, MO in Cass County, the second fastest growing county in Missouri, approximately 37 miles southeast of Kansas City. Cass Regional is a critical access hospital with 25 acute-care beds and a 10 bed gero-psychiatric unit. Other entities include six medical clinics, eight employed family practitioners, one employed general surgeon, and five employed family nurse practitioners. Cass Regional covenants to provide audited annual financial statements 150 days after the year-end close and quarterly disclosure 45-days after the quarter close to bondholders via the NRMSIRs. Quarterly disclosure has been timely and consists of a balance sheet, income statement, and utilization statistics.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Anthony A. Houston, 312-368-3180 (Chicago)
Michael Burger, 212-908-0555 (New York)
Media Relations:
Cindy Stoller, 212-908-0526 (New York)
cindy.stoller@fitchratings.com
