L+M earns a better grade with new ‘A+’ debt rating

Standard and Poor’s showing greater confidence in hospital

New London — Nearly a year-and-ahalf after lowering Lawrence + Memorial Hospital’s debt rating because of “weaker than expected system operating performance,” Standard and Poor’s has raised it back up to an “A+” rating.

The upgrade last week reflects S&P’s higher confidence in Lawrence + Memorial’s ability to meet its financial commitment on debt it owes to the Connecticut Health & Educational Facilities Authority since it joined the Yale New Haven Health System in September last year.

In May 2016, the agency lowered the hospital’s debt rating from “A-” to “BBB+” but characterized the hospital’s financial health as “developing” because of the possibility it would affiliate with the Yale New Haven Health System.

More than a year after the affiliation went into effect, the hospital’s financial health also now shows a stable financial outlook, according to an S&P report.

“The ratings reflect (Yale New Haven Health System)’s healthy enterprise profile, highlighted by its broad strength along Connecticut’s southern tier with increasing demand for services across high acuity services lines, solid and growing medical staff, and role of Yale New Haven Health ... as one of the country’s leading academic medical centers via its close affiliation with the Yale University School of Medicine,” S&P Global Ratings credit analyst Jennifer Soule said in an announcement.

“We think the organization’s ability to post consistently strong operating and cash flow margins despite reduced state funding, along with its capability to quickly integrate (L+M) into its system demonstrates the aptitude of its management team and the system’s overall financial flexibility,” Soule added.

Future ratings depend on the health system’s operating margins and state funding support, according to the news release.

The ratings jump will mean lower interest rates for L+M on a portion of its approximately $90 million in outstanding bonded debt, L+M spokesman Michael O’Farrell said Monday.

Seth Van Essendelft, chief financial officer and vice president of support services for the hospital, said last year that the credit downgrading could be attributed to decreased inpatient volumes, a higher percentage of patients with Medicaid insurance coverage and increasing competition from freestanding surgery and imaging centers, as well as the state hospital tax.

O’Farrell said changes in those metrics have not been released for the 2017 fiscal year that ended Sept. 30, but added that inpatient volumes are “strong” and that S&P’s “stable” diagnosis reflects the cost-cutting and revenue-boosting efforts that the hospital has undergone since the affiliation with the Yale New Haven Health System.

“They’ve really put a lot of value in the hard work that’s been put in over the first year,” he said, citing the integration of the physicians and staff of Lawrence + Memorial Medical Group into Northeast Medical Group, the installation of a new medical records system and more efficient supply chain management.

S&P Global Ratings maintained an “AA-” credit rating for bonds issued for Yale New Haven Health as a whole.