Mercy Hospital and Medical Center resumed making timely bond and interest payments, a sign the hospital’s finances may be improving, a new report indicates.
The storied South Side hospital missed a $3 million bond payment in January, raising questions about the facility’s future while intensifying pressure on the medical center to merge with a larger health-care concern.
But a new report by Standard & Poor’s Ratings Services indicates Mercy’s financial health is making positive strides and that the medical center has improved its cash position of late.
S&P on March 12 raised Mercy’s rating one notch to “CC” from “D,” the lowest rating on the agency’s 22-notch scale. S&P said the new rating, which affects $62 million in bonds, has the potential to be raised again in the next six months.
“Over the last three months or so, they have been on a positive trend,” said Brian Williamson, associate director in Standard & Poor’s Chicago office. “They are trying to lay a more stable footing.”
Mercy sold two medical office buildings, generating more than $5 million. The hospital has also improved its operating performance.
However, analysts say Mercy’s financial situation still has room for improvement.
S&P said Mercy’s “liquidity is still weak, but slightly better at $17.7 million, representing 41 days of cash on hand through Jan. 31.” At its fiscal year’s end June 30, 2003, the hospital had $12.7 million or 28 days of cash on hand.
Bondholders continue to push Mercy to sell or merge with a larger player to bring in cash. That would result in the bondholders being paid while ensuring that the facility, Chicago’s oldest chartered hospital, remains viable.
Mercy would not comment about its merger talks but told S&P that “no merger or sale is pending.”
A consortium of Chicago-area hospital operators bid $50 million for Mercy last fall and is still interested in a deal, sources close to the facilities say. They are: Thorek Hospital and Medical Center in Chicago; Resurrection Health Care in Chicago; and Sisters of St. Francis Health Services of Mishawaka, Ind.
Mercy was founded in 1852. The hospital had a major setback four years ago when the nuns who serve on the hospital’s board uncovered huge financial losses brought on by a series of management blunders by former executives who left in 2000.
Lake Forest outlook: The normally steady financial performance of Lake Forest Hospital was recently handed a “negative outlook” in a report by Standard & Poor’s.
The 215-bed hospital, serving the north suburbs, still had its “A-” rating reaffirmed, meaning its interest rate will not be affected.
But the hospital is beginning to face competitive pressures common at other facilities but not Lake Forest, which serves one of the most affluent populations in the state.
Lake Forest’s outpatient visits and surgeries declined last year, in part because an orthopedic surgery group opened its own ambulatory surgery center. Lake Forest has also noticed more physicians doing more procedures in their offices rather than in the hospital, S&P’s March 15 report said.
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Those trends contributed to operating income of $700,000 in the hospital’s fiscal 2003, compared with $13.8 million in fiscal 2002.
“The negative outlook reflects the increased competition and declines in operating income,” S&P said.
But Lake Forest is confident its income levels will bounce back, given various capital investments and expansion plans.
Lake Forest opened a new women’s health center as an addition to the hospital in January and will open a new outpatient and acute-care center in Grayslake in April.
“These investments, while a depression on current earnings, are strategic investments for income recovery,” said hospital spokesman Barrie Fromme.