DHMC receives A+ financial rating

by Erin Lee | 2/16/15 7:40pm

For the second year in a row, Fitch Ratings, a New York-based financial ratings agency, has awarded the Dartmouth-Hitchcock Obligated Group’s revenue bonds an A+ rating. The rating, which was issued earlier this month, is based on the approximately $69 million revenue bond series 2009 and $75 million revenue bond series 2010, according to the Fitch report.

DHOG, which consists of DHMC and the Dartmouth-Hitchcock Clinic, currently has $535.6 million of total outstanding debt, according to Fitch’s report.

Dartmouth-Hitchcock Medical Center director of external relations Rick Adams said that DHMC is pleased with the rating.Fitch described DHOG’s outlook as “stable.”

Co-founder of HFA Partners, a company that advises non-profit health care providers, Pierre Bogacz said that these ratings serve as credit scores and third-party assessments of the quality of borrowers.

“The rating process is really to the benefit of the bondholders that are buying the bonds issued by Dartmouth-Hitchcock,” he said. “It’s the rating agency’s estimate of the likelihood that the borrower will be able to make the payments.”

In the report, Fitch Ratings said that DHMC’s status as the largest provider of health care services in New Hampshire and its efforts to “grow its regional footprint” were key factors in the rating.

Bogacz said that DHMC’s status in the A category indicates strong credit quality, as most other healthcare systems are in the BBB or A category. He added that a few larger institutions are in the AA category.

By comparison, both Dartmouth College and Geisel School of Medicine have AAA ratings from Fitch, while DHMC’s closest competitor, Fletcher Allen Health Care in Burlington, Vermont, has an A- rating.

According to the Fitch report, DHMC has a goal of reaching a four percent operating margin while reducing costs in line with Medicare rates. Adams confirmed this target and said that based on the most recent fiscal quarter, DHOG is on track to reach the goal by the end of the year. In the report, Fitch said this goal “will be challenging to achieve,” though it noted that the institution’s operating performance has improved over the last two years. DHOG had a two percent and 2.7 percent operating margin in 2014 and 2013, respectively, compared to the A category median of 2.5 percent, according to Fitch.

Adams said DHMC’s goal is to reform healthcare payment to get to a place where operating costs are equivalent to Medicare reimbursement rates.

He said that DHMC is currently operating under a fee-for-service model, where the institution is paid for the number of procedures performed, a system that is “unsustainable.”

“It forces doing more for the sake of doing more and is not in the patients’ best interests,” he said. “We want to talk about value rather than volume, providing the care that the patient wants safely and of the highest quality and lowest cost.”

The report noted that DHMC has consistently posted lower Medicare spending rates compared to national averages.

In the last two years, DHMC has affiliated with New London Hospital and Mt. Ascutney Hospital and is looking to affiliate with Cheshire Medical Center in early March. DHMC is also in talks with Alice Peck Day Memorial Hospital.

Affiliation bewteen DHMC and APD would allow the latter to expand access to care, decrease cost and improve quality while continuing to compete with larger health care institutions, the APD announced.

APD associate vice president for external affairs Peter Glenshaw said that APD expects to reach a formal agreement with DHMC by the second half of 2015. He said that the hospital was hoping to be affiliated by this time, but the process, which requires the approval of the New Hampshire attorney general and other officials, has taken longer than expected.

Fitch’s last review of DHMC was conducted on Feb. 7, 2013. Bogacz said that Fitch conducts ratings every two years for category A organizations, while its two primary competitors, rating agencies Standard & Poor’s and Moody’s Investors Service, release reports annually.

He said that these three firms provide the vast majority of publicly available municipal bond ratings for investors.