BRADENTON, Fla. - Another Florida hospital faces potential credit problems due to soaring medical malpractice awards and premiums.
Mercy Hospital in Miami was downgraded to Baa2 from Baa1 by Moody's Investors Service last week. The outlook is stable, and the hospital's outstanding $46 million of debt subject to the downgrade is insured by Ambac Assurance Corp.
The Baa2 rating reflects a decline in fiscal 2001 performance due to nearly $12 million of adjustments to bolster reserve levels and a $42 million private placement in April pressuring operations to support the higher debt burden, Moody's analyst Lisa Goldstein said in reporting the downgrade. Mercy is not rated by Fitch Ratings or Standard & Poor's.
Jerry Mashburn, chief financial officer at Mercy, said one reason for Moody's action is a malpractice case in which the hospital was held 10% negligent, but 100% responsible for the $4 million verdict, under Florida's joint liability law. The doctor settled out of court.
Insurance covers the $4 million judgement, but the case is expected to cost an additional $1 million in legal fees and other costs, Mashburn said.
In May, the Orlando Regional Healthcare System Inc. sold $109.4 million of uninsured hospital revenue bonds while a $78.5 million malpractice verdict was being appealed. The system had $38.5 million in malpractice insurance coverage, and the appeal is still pending.
Rating agencies said the financial impact of the portion of the verdict not covered by insurance could affect Orlando's credit rating if the appeal is not successful. In May, the credit was rated A-minus by Standard & Poor's, A2 by Moody's, and A-minus by Fitch.
Insurance premiums continue to rise partly because of jury awards, according to the American Medical Association. In Philadelphia, West Virginia, South Florida, and Mississippi, the AMA said premiums are two to four times higher than in California.
The AMA currently is lobbying Congress for tort reform modeled after California's 1975 legislation that slowed the rise in premiums compared to the rest of the country.
Meanwhile, the 512-bed nonprofit Mercy Hospital continues to fight in the highly competitive South Florida market, ranking fourth after Baptist Hospital, Mount Sinai Medical Center, and Palmetto Regional.
Mercy's fiscal 2001 performance resulted in a $9.7 million operating loss, operating cash flow of $3 million, which is well below the national norm for the sector, and increased reserves to cover malpractice loss due to the case that is under appeal, Goldstein said.
Under a new chief executive officer appointed last July and stronger oversight by Mercy's affiliation with Catholic Health East based in Pennsylvania, Goldstein said Mercy's financial performance should improve.
Standard & Poor's lowered Catholic Health East's underlying rating to A from A-plus last week. Moody's and Fitch assign underlying ratings of A2 and A-plus, respectively.
