Hospitals threaten Temple University's credit rating

Posted: October 20, 2013

Temple University's credit rating could be downgraded because of the financial problems of the university's affiliated health system, according to a report by Moody's Investor Service.

Moody's said it might cut the rating, now Aa3, unless the university can "separate" itself from Temple University Health Systems or take other steps to stop the hospitals' "deep operating deficits" from draining the university's cash.

This situation is one of the challenges facing Temple University president Neil D. Theobald, who was inaugurated Friday.

A university spokesman declined to comment Friday.

A lower credit rating typically means higher financing costs, since borrowers that are seen as higher-risk investments have to pay lenders and investors more.

"Poor operating performance and weak cash flow margins" at Temple Health will create "operating and liquidity pressures," and dealing with the financial threat will take a lot of Theobald's time, Moody's analyst Diane Viacava and her team wrote in a report to clients.

Temple may end up needing to bail out its hospitals if Gov. Corbett's administration keeps trimming health-care payments, Viacava said.

Temple hospitals suffer what Moody's calls "deep operating deficits," and Moody's cut their rating in July to Ba2, threatening further cuts.

Temple data show operating margins in the last fiscal year fell below two cents on every dollar, down from more than four cents a year earlier, and they are still dropping, Viacava said.

The 728-bed Temple University Hospital on North Broad Street serves some of the neediest patients in the city. Between July 1, 2011, and June 30, 2012, the emergency room had 131,560 visits.

The hospital also serves as the main clinical training site for the university's medical school. The other hospitals in the system are Fox Chase Cancer Center, Jeanes Hospital, and Temple University Hospital-Episcopal Campus.


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