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Catholic Medical Center’s credit rating downgraded by Moody’s

Catholic Medical Center’s credit rating has been downgraded by Moody’s, which noted the 330-bed acute care hospital’s heavy reliance on contract labor.

The credit rating agency mentioned CMC’s important role as the primary cardiac surgical service provider in the Manchester service area.

But said it is “offset by its relatively modest scale of operations and competitive market. While liquidity remains adequate, CMC’s weak operating performance has driven cash declines and reduced financial flexibility.

“Operating losses are largely driven by a heavy reliance of contract labor, elevated wages and inflationary pressures,” Moody’s said.

Laura Montenegro, CMC’s director of Communications & Public Relations said in an emailed response to Moody’s downgrade: “CMC is committed to its patients and mission – providing Christ’s healing ministry by offering health, healing to every individual who seeks our care. We’ve done that through the most challenging days of the pandemic, and we will continue going forward.

“Across the country, hospitals are facing financial challenges due to the financial impacts and operational disruptions of the pandemic, the high cost of contract labor necessary to keep beds open in light of the workforce shortages and increasing operation costs. CMC is not immune to these trends. In response, CMC has implemented targeted strategies to improve financial and operational performance.

“The Moody’s Rating Agency recognized this, noting “a number of strategic and operational improvement initiatives, already underway, to address operating challenges.” These initiatives are expected to save the hospital approximately $8 million this fiscal year and $50 million in our next fiscal year. Healthcare delivery is also very competitive and constantly evolving. CMC continues to strive for greater efficiencies and ways to improve patient experience. These initiatives will continue to position us for rating improvement in the future,” Montenegro said.

Moody’s said while CMC management has a number of strategic and operational improvement initiatives already underway to address operating challenges, “the pace of progress remains uncertain due to ongoing labor challenges as well as sluggish clinical demand trends.”

The initiatives will focus on revenue cycle management, as well as strategic growth focused on service contracts renegotiations, physician enterprises and expense reduction, Moody’s said.

On Aug. 22, Moody’s downgraded CMC’s rating to Ba1 negative, which is judged to have speculative elements and be subject to substantial credit risk, from Baa3 negative, which is considered investment grade.

On the credit plus side, Moody’s said CMC is favorably located in Manchester with low unemployment and high income levels.

“The negative outlook reflects the likelihood that CMC’s liquidity will remain narrow to its bank debt covenant given ongoing cashflow losses and could further weaken before performance initiatives gain traction,” Moody’s said.

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