Moody’s revises WakeMed’s outlook to negative after poor financial performance

The ratings agency Moody’s Investors Service affirmed the credit rating issued to WakeMed’s bonds earlier this month, but revised the Raleigh-based health are system’s financial outlook from neutral to negative.

Moody’s wrote in its report that the change in outlook reflected WakeMed’s poor 2013 financial performance, and concerns over the nonprofit’s patient mix.

WakeMed lost $10 million in 2013 – its first operating loss in years – and is implementing a number of initiatives to cut costs and raise revenue.

Moody’s said WakeMed’s strengths remain its lead market share in Wake County, a growing area with a population characterized by high income levels. It also operates the only children’s hospital and Level 1 Trauma center in the county and continues to maintain a strong balance sheet, with 218 days of cash on hand.

Moody’s said WakeMed’s challenges include the fact that it treats a higher share of indigent and Medicaid patients than other local hospitals. “North Carolina is not expanding Medicaid coverage, and meaningful shifts in payer mix often take years to implement,” Moody’s wrote.

The ratings agency also noted the departure of Wake Heart, the doctors group that had been responsible for a good chunk of WakeMed’s profits, and the fact that the hospital system recently got rid of its CEO, Bill Atkinson, unexpectedly. “Although the organization is continuing to implement strategic initiatives while conducting a national search, the next year could be transformative for the organization and the organization would benefit from stable leadership,” Moody’s wrote.

Last week WakeMed appointed Donald Gintzig, a Navy rear admiral and career health care executive, to be its interim CEO. The organization expects to name a permanent replacement within 12 months.

WakeMed has $425 million in outstanding debt that is rated A1.

Moody’s said a ratings upgrade remains unlikely, unless WakeMed is able to show sustainable improvement and stabilize its patient volumes, including the volume of cardiac patients. A downgrade, which would increase WakeMed’s borrowing costs, is possible if WakeMed’s 2014 financial performance disappoints.

“We are likely to downgrade the rating if WakeMed is unable to meet the 2014 budget or issue incremental debt without material improvement in operating performance,” Moody’s wrote. “Additionally, the rating may be downgraded if WakeMed continues to lose patient volume and if the organization’s payer mix weakens materially.”