NEW YORK--(BUSINESS WIRE)-- Fitch Ratings takes the following rating action on Hackensack University Medical Center (HUMC), NJ as part of its continuous surveillance effort:
--Approximately $456 million New Jersey Health Care Facilities Financing Authority (Hackensack University Medical Center Issue) revenue bonds, series 1998, 2000 and 2008, affirmed at 'A-';
--Approximately $73 million New Jersey Economic Development Authority (Hillcrest Health Service System Project) revenue bonds, series 1997, affirmed at 'A-'.
The Rating Outlook is Stable.
RATING RATIONALE:
--HUMC has a nationally recognized reputation for excellent quality, having received numerous awards and certifications, including HealthGrades recognition as one of America's 50 Best Hospitals for four years in a row. HUMC was the top performer in the nation for 2005 and 2006 in the Centers for Medicare and Medicaid Services (CMS) Pay-for-Performance Project, and was the first hospital in New Jersey to achieve Nursing Magnet Status.
--HUMC enjoys leading primary service area (PSA) market position and is also the health system of choice for certain specialized services for patients, medical staff and health plans in northern New Jersey.
--HUMC's operating profitability is modest. After posting small operating losses in fiscal year (FY) 2005 and FY 2006, HUMC recorded a 1.0% operating margin in both FY 2007 and FY 2008, and 0.3% in FY 2009, excluding $10.7 million of one-time restructuring costs.
--Liquidity measures are moderate with $377 million of unrestricted cash and investments as of March 31, 2010, which amounts to 125.2 days cash on hand (DCOH) and 74.7% of long-term debt. These metrics do not compare favorably to Fitch's 'A' category medians of 171 DCOH and 113% cash to debt.
--Debt position is relatively high with 62.5% debt to capitalization and 7.0 times (x) debt to operating EBITDA in FY 2009. However, Fitch notes that HUMC's capitalization is negatively affected by the excess of the projected qualified benefit obligations over the fair value of its pension plan assets. (Fitch's 'A' category medians amount to 40.3% debt to capitalization and 4.1x debt to operating EBITDA.)
KEY RATING DRIVERS:
--Successful cancer center and cardiac hospital project completion and full implementation of new service lines that are expected to enhance revenues and balance sheet ratios;
--HUMC's ability to navigate the state of New Jersey's challenging operating and reimbursement environment.
SECURITY:
The bonds are secured by a mortgage lien on HUMC's principal facilities, its gross receipts, and a debt service reserve fund.
CREDIT SUMMARY:
The rating reflects HUMC's nationally recognized reputation for excellent clinical quality, leading market position in a competitive environment, modest operating results, and balance sheet metrics that do not compare favorably to Fitch's 'A' category medians. During the past seven years, HUMC has invested significant amounts of capital and human resources into clinical quality improvements and outcomes measurement. HUMC's success is clearly demonstrated by the multiple and continual awards and recognition it receives, plus high patient, physician and employee satisfaction. Fitch also views favorably HUMC's recent governance modifications that reduced the size and structure of the board and its operating committees. Fitch believes the new structure allows for an enhanced decision making framework that is more focused on strategic developments.
HUMC has maintained its leading market position in Bergen County, NJ and also in its tri-county region of Bergen, Hudson, and Passaic counties and reduced the amount of out-migration to New York City hospitals for specialized services. In 2007, HUMC had a 28% market share in Bergen County, 10% more than its nearest local competitor. The addition and expansion of services at the former Pascack Valley Hospital is increasing its presence in the northern portion of its service area. After steadily increasing during the FY 2004-FY 2007 period, utilization growth moderated during the past two years. Total inpatient and observation cases increased 0.7% in FY 2008 and were flat in FY 2009. However, most outpatient services showed better gains during the same periods.
While HUMC enjoys excellent quality indicators and favorable business trends, profitability has not measured up with similarly rated hospitals and healthcare systems. This is partially due to the challenging operating and reimbursement environment in the state of New Jersey. While operating performance slightly improved over the past few years, both the operating margin and operating EBIDTA margins have consistently been below Fitch's 'A' rated medians. During FY 2009, HUMC initiated a restructuring plan to respond to the softer volumes and tightened reimbursement situation. As part of the $10.7 million program HUMC, expects to eliminate about 100 positions. For FY 2010, management expects improved operating performance as the benefits of the restructuring plan are realized and volumes remain healthy from prior service development initiatives.
Located in Hackensack, NJ, HUMC is a university affiliated teaching hospital, with 775 licensed beds. This regional referral center provides an array of tertiary and quaternary level services in its primary service area of Bergen County and in a secondary service area of Hudson and Passaic Counties, NJ. In FY 2009, HUMC had $1.16 billion in total revenues. HUMC covenants to disclose annual and quarterly information to the Municipal Securities Rulemaking Board's EMMA system. In addition to utilization and financial statements, HUMC provides timely quarterly management discussion and analysis of its results, which Fitch views favorably.
Applicable criteria available on Fitch's web site at 'www.fitchratings.com':
--'Revenue-Supported Rating Criteria', dated Dec. 29, 2009;
--'Nonprofit Hospitals and Health Systems Rating Criteria', dated Dec. 29, 2009.
Additional information is available at 'www.fitchratings.com'.
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KEYWORDS: United States North America New Jersey New York
INDUSTRY KEYWORDS: Health Hospitals Professional Services Finance
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