Central Florida hospital bond ratings stabilize

Fitch Ratings has affirmed the 'BBB' rating on Citrus County Hospital Board's (Citrus Memorial Health Foundation, Inc.) approximately $41 million series 2002 bonds. The Rating Outlook is Stable.

The rating affirmation is based on Citrus Memorial Hospital's (CMH) leading market position in Citrus County which has supported improved operating metrics, its ad valorem taxing authority, and adequate cash balances. Offsetting credit factors include a governance dispute at the board level that qualifies future tax revenues, a concentrated payor mix, outpatient services competition, lower inpatient volumes, and weak service area economic indicators.

The Citrus County Hospital Board (CCHB) has the authority to levy ad valorem taxes up to three mills per calendar year without voter referendum or county commissioner approval. In fiscal year (FY) 09, the millage rate was approximately 1.1689 mills, and CMH received $12.1 million. For FY10, CCHB reduced the millage rate to 1 mill and expects to collect about $9 million. However, CCHB only expects to send a total of $5 million to CMH as a result of uncertainties over board governance matters. According to management, a governance dispute has caused the CCHB to qualify future tax revenues in FY10. Although management reported that its budget in FY10 will offset this decrease in tax receipts, Fitch views this issue negatively. Within the context of the ongoing recession, any decrease in revenues may put pressure on CMH to continue its upward operating trajectory. At this time, Fitch does not consider this to have a material impact on the credit but will continue to monitor this situation and opine as necessary if changing in credit quality result.

CMH is the leading provider in Citrus County with a 40.3% inpatient market share in 2008. Its next closest competitor, Seven Rivers Regional Medical Center, holds 23.8% market share. Unaudited figures for FY09 reveal a much improved profitability position since fiscal 2007. As of Sept. 30, 2009 (unaudited), CMH recorded $5.2 million in operating income (2.8% margin), which is up from FY08's $495,000 profit (0.3% margin). The increase primarily comes from recouping monies from the Florida RAC audit, reduced labor costs, and business service office improvements. Unrestricted cash and investments of $42 million as of Sept. 30, 2009 equated into 103.2 days cash on hand and 72.8% cash to debt, which Fitch views as satisfactory compared to the 'BBB' median of 114 days and 62.6%.

Medicare and Medicaid typically account for over 70% of CMH's gross revenues. Such a high exposure to governmental payors leaves CMH vulnerable to federal and state program modifications or funding reductions. While CMH is the market leader for inpatient services, the primary service area includes a variety of independent imaging and surgical centers that compete for outpatient care. Inpatient admissions fell 3.3% in FY08 and another 1% in FY09 mostly as a result of classification of certain diagnoses to outpatient observation visits. However, outpatient registrations increased 3% in both FY08 and FY09. CMH's service area is relatively weak economically with high unemployment and below average wealth and income levels. Citrus County unemployment jumped to 8% in 2008 and 12% as of October 2009, from 5% in 2007. These are all above the state of Florida's 6.2%, 11.2%, and 5% averages, respectively. Furthermore, Citrus County's median household income of $36,979 is only 77.4% of the state of Florida's average (2007 data from the Census Bureau).

Citrus Memorial Hospital is a 198-bed community hospital located in Inverness, FL, approximately 75 miles north of Tampa. CMH had total operating revenues of $184 million in FY09. CMH covenants to provide quarterly disclosure by written request to bondholders who hold more than $1 million in bonds and distributes annual disclosure to the Municipal Securities Rulemaking Board's EMMA system.

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