PROVIDENCE - Fitch Ratings recently upgraded its long-term rating on Care New England Health System's bonds to "BB" from "BB-."
The rating applies to $101.5 million in bonds issued by the Rhode Island Health and Educational Building Corp. and $21.6 million in a taxable series of bonds. Both were issued in 2016 and secured by a pledge of gross revenues, mortgage interest in certain facilities and the debt service revenue fund.
Fitch also upgraded Care New England's Issuer Default Rating to "BB" from "BB-." The rating outlook is stable.
The upgrade and stable outlook reflect the health system's improvements to operations and cash flow, which were driven by a set of initiatives implemented in fiscal year 2023, Fitch said. The initiatives focused on boosting revenue growth and revenue cycle management, as well as controlling costs. Also, efforts to grow volume through clinical service expansions have helped the health system's finances.
Fitch said that the initiatives, along with capital projects, are expected to continue to drive improvements in the health system's financial stability.
The rating is also supported by the market strength of Women & Infants Hospital, which captures 81% of all births in Rhode Island and continues to work with Brown University with CNE's facilities serving as teaching hospitals for the Warren Alpert Medical School, according to a news release.
Fitch rated the revenue defensibility "bbb." The health system has the second-largest market share in the Greater Providence area at about 28.6%, behind Brown University Health, which has a 45.5% market share. CNE's payor mix is about 29% Medicaid and self-pay, and another 32% from Medicare. But most of the Medicaid patients come from pediatric and neo-natal services at Women & Infants, which delivers more than 9,000 babies a year. Neo-natal specialty services are reimbursed at a higher rate by Medicaid than general adult services.
Care New England also has a teaching affiliation with Brown University and signed an agreement to align research operations with Brown's Division of Biology and Medicine, which can help the health system compete for funding opportunities.
Care New England's operating risk was rated "b" by Fitch. The health system has boosted profits, with an operating EBITDA - or earnings before interest, taxes and depreciation - margin rising from 0.3% in fiscal year 2022 to 3.3% through the first quarter of fiscal year 2025. These improvements mainly come from initiatives aimed at revenue cycle and labor costs, as well as improved clinical documentation, reductions in length of stay, incremental revenue rate improvements and revenue supply chain optimization.
Fitch believes Care New England will continue improving given its current momentum, however the ratings agency said it was concerned that the health system's capital spending has lagged for the past five years.
Fitch acknowledged that CNE finished some big projects in the last two years, including a new medical surgical unit and a new labor and delivery unit, both at Women & Infants Hospital. Care New England is also expanding its use of the EPIC electronic health record system, which is expected to go live Oct. 1.
Fitch rated the health system's financial profile "bb" and said it continues to improve. CNE's unrestricted reserves balance was $245 million as of Sept. 30, 2024, or 64 days cash on hand, and its unrestricted reserves compared with debt, as measured by cash-to-adjusted debt, was a healthier 114%, according to the release. This is up from 2023's unrestricted reserves total of $172.1 million in unrestricted reserves, or 49 days cash on hand and 76% of long-term debt.
The rise in liquidity shows a drop in receivables and stronger cash flow. Also, an increase in accounts payable has temporarily boosted the health system's liquidity. Management reports that cash has grown "measurably" through April 2025.
Fitch said it expects Care New England will have continued improvements to cash flow in the long term, as well as its operating performance, which should boost its balance sheet resources.
"We are pleased with Fitch's credit rating upgrade and believe it is appropriate," Todd Conklin, chief financial officer for Care New England, said in a statement.