Fitch Affs Ohio Valley Health Services -West Virginia- Bonds at 'BB'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 20, 2002

Fitch Ratings affirms the 'BB' rating on the $12,075,000 County Commission of Ohio County, WV health system refunding and improvement revenue bonds (Ohio Valley Medical Center Issue), series 1998A, the $6,390,000 County Commission of Ohio County, WV health system refunding and improvement revenue bonds (Ohio Valley Medical Center Issue), series 1998B (Taxable), and the $18,220,000 County of Belmont, OH health system refunding and improvement revenue bonds (East Ohio Regional Hospital Issue), series 1998. The bonds are partially insured by ACA Financial Guaranty Corporation, whose insurer financial strength is rated 'A' by Fitch. The Rating Outlook is Stable.

The rating affirmation is due to Ohio Valley Health Services and Education Corporation's (OVHSEC) new strategic focus, including the addition of new services at East Ohio Regional Hospital (EORH), and a favorable staffing situation. OVHSEC has strategically refocused its operations by reducing services provided by Ohio Valley Medical Center (OVMC) in West Virginia, while concentrating more on the complement of services provided at EORH in Ohio. OVHSEC has added cardiac catheterization services, trauma programs, and patient rooms at EORH and is currently planning to add new operating rooms with open-heart capability. West Virginia operations continue to challenge management and 46 management and non-bedside care employees from OVMC were laid off in October 2002, with additional reductions planned within the next twelve months. Fitch views this reduction favorably as it should result in cost savings of approximately $2 million. Another positive credit factor is OVHSEC's favorable nursing situation. OVHSEC has no critical shortages as nurse vacancy rates are low. In addition, OVHSEC does not employ agency nurses. Operating losses have improved with a negative 2.4% operating margin for the nine months ended Sept. 30 2002 from an average of negative 4.2% in fiscal years 2000-2001, however, OVHSEC is behind budget for fiscal 2002.

OVHSEC's main credit risks include weak and declining liquidity, large operating losses, aging hospital facilities, and sharp increases in malpractice premiums. Liquidity levels continue to decline and at Sept. 30 2002, OVHSEC had 23 days cash on hand and 20% cash to debt. Despite improvements from recent initiatives, OVHSEC's operating losses remain high. Losses are due to large increases in malpractice premiums, which have doubled since 2001 and is expected to continue over the next several years. Skyrocketing malpractice premiums have hampered OVHSEC's ability to recruit new physicians, especially neurosurgeons. OVHSEC's limited financial flexibility reduces its ability to invest in its plant as the need for capital improvements on their aging hospital facilities is high with an average age of plant of 18 years.

The two-hospital system operates a combined total of 264 acute-care beds, 244 long-term care beds and 22 rehabilitation beds in northwestern West Virginia and southeastern Ohio. OVHSEC's disclosure to Fitch has been adequate and timely.