Fitch Affirms Ochsner Clinic Foundation (LA) Revs at ‘BBB+’; Outlook Stable
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Fitch Ratings has affirmed its 'BBB+' rating on the following revenue bonds issued on behalf of
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The Rating Outlook is Stable.
SECURITY
Debt payments are secured by a gross revenue pledge of the obligated group, a mortgage on certain properties, and a debt service reserve fund.
KEY RATING DRIVERS
IMPROVED FINANCIAL YEAR: Unaudited 2013 financial results for
LIQUIDITY STRENGTHENED: The improved cash flow lifted unrestricted cash and investments to
UNIQUE OPERATING PROFILE: Ochsner is increasingly a regional health care provider for tertiary services, with both referrals from other providers and admissions from outside the service area showing solid growth, while Ochsner is also moving forward on managing population health, with approximately 129,500 lives currently managed and approximately 37 percent of these lives full-risk contracts. Supporting this is a leading inpatient market share (19.8 percent) in the greater
OPERATIONAL IMPROVEMENTS CONTINUE: Operations remain below Fitch's 'BBB' category medians, and Ochsner continues to implement an improvement plan, which includes productivity and efficiency initiatives, enhanced supply chain management, and improved contracting rates, that was put in place in 2013 in response to the operating losses. Ochsner exceeded its 2013 goal for revenue enhancements and cost saving initiatives and has budgeted for additional improvements in 2014.
MANAGEABLE DEBT BURDEN: At
RATING SENSITIVITIES
OPERATING PERFORMANCE STABILIZATION: Ochsner has weathered significant
CREDIT PROFILE
Located in
Improved Financial Profile
Ochsner finished 2013 with a 1.5 percent operating margin and a 7.5 percent operating EBITDA margin (unaudited results). While still trailing the 'BBB' category medians of 1.8 percent and 9 percent, the results are materially improved over 2012's (1.9 percent) operating margin and 3.9 percent operating EBITDA margin. The negative results in 2012 were driven by the impact of hurricane Isaac and a systemwide EPIC implementation. The better 2013 results reflect the success of an improvement plan implemented by Ochsner, as well as an increase in supplemental funding. Ochsner achieved
Last year Ochsner took over running the
The stronger operating results coupled with revenue cycle improvements and investment returns helped grow liquidity, which had been a concern at Fitch's last rating action. At
Dual Strategy
Fitch views positively Ochsner's dual strategy of growing as a regional referral center, while moving forward on population health management within its primary service area. Ochsner has full-risk contracts, through capitated payments, on approximately 30,000 lives. Ochsner has been under this contract for a number of years as the contract originated when Ochsner sold its health plan. In the last few years, Ochsner has shown the ability to bend the cost curve for the care of these patients while maintaining high quality, which positions Ochsner well for health care reform and value-based purchasing.
Ochsner also continues to grow as a regional provider of tertiary services. Since 2010, transfers from other hospitals to Ochsner have grown 44 percent and discharges from at least 25 miles outside the service area have grown by 13 percent. The growth in regional referrals is an outcome of Ochsner's central patient transfer protocol, which it implemented a few years back, with the goal of enabling acceptance of all transfers from around
Manageable Capital Plan
Ochsner's projected three-year capital expenditures from cash flow total
Debt Profile
As of
Stable Rating Outlook
The Stable Outlook reflects Fitch's expectation that Ochsner will continue to successfully execute its improvement plan and achieve its financial targets for FY 2014.
Disclosure
Ochsner has covenanted to provide annual and quarterly disclosure through the Municipal Securities Rule Making Board's EMMA system. Further, Ochsner conducts quarterly investor calls, which Fitch views positively.
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