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PALISADES MEDICAL CENTER (NJ) SERIES 1992 BONDS DOWNGRADED BY FITCH -- FITCH FINANCIAL WIRE --

 NEW YORK, Jan. 6 /PRNewswire/ -- New Jersey Health Care Facilities Financing Authority's $41 million revenue bonds, Palisades Medical Center obligated group issue, series 1992, are lowered to "BB" from "BBB" by Fitch. The credit trend is uncertain.
 A significant deterioration in financial operating performance of the hospital coupled with a severely weakened liquidity position warrants a downgrade into the speculative grade category. The poor financial performance will likely result in the obligated group's failure to meet its debt service coverage ratio set forth in the legal documents. The hospital retained Ernst & Young to perform a review of hospital operations.
 During fiscal 1992, operations were negatively impacted by unanticipated increases in operating costs, a sharp rise in accounts receivable, and a revamping of the state's reimbursement system. Unbudgeted expenses included the booking of unrecorded invoices, higher than anticipated utility costs, and non-capitalized costs related to a construction project. In addition, a number of key management positions were vacant, resulting in poor supervision along with elevated consultant and contract worker fees.
 The liquidity problem is highlighted by an increase in days in accounts receivable to 120 as of Nov. 30 from 68 at the end of 1991. The bulk of this increase is due to delayed processing of Medicaid claims by the state's intermediary. As a result, Medicaid receivables have risen to about $5.6 million from $1 million at the end of fiscal 1991. Due to cash limitations, the average payment period increased to 138 days as of Nov. 30 from 85 days at the end of fiscal 1991 and the hospital accessed a line of credit.
 The New Jersey State Legislature passed the Health Care Reform Act on Nov. 30, 1992. The act includes provisions for the deregulation of the state's hospital reimbursement system and the creation of an alternative funding mechanism for uncompensated care. The system will be in transition in 1993, with revenue caps established for each hospital. After 1993, no such caps will exist and hospitals will operate in a deregulated rate environment.
 The hospital's decreased revenue in 1992 is mainly due to the discontinuation of booking revenue attributable to prior years' revenue "undercollection." The elimination of rate setting regulation will no longer require annual reconciliations to determine if a hospital has over- or undercollected revenue given their established rates, nor will it provide a mechanism to recoup any past "undercollection."
 Operations in 1993 will be negatively impacted by reduced uncompensated care funding, resulting from the creation of the Health Care Subsidy Fund to replace the previous funding mechanism, the New Jersey Health Care Trust Fund. In addition, reduced Medicaid reimbursement, resulting from federal overpayments in prior years to the state, will inhibit revenue growth. These two items could reduce revenues by over $3 million. Palisades' current payor mix consists of 11 percent Medicaid and it had been a recipient from the uncompensated care trust fund due to its heavy indigent patient load. Palisades' commercial payor base of 23 percent of revenues will limit its flexibility to generate additional revenues.
 Inpatient utilization is off by about 3.4 percent in 1992, although overall demand for services remains strong. The very high average length of stay continues to be a problem, currently at 8.7 days. Part of the construction and renovation project funded with series 1992 bond proceeds was delayed. The completion of the new outpatient surgery facilities, the expanded emergency room and the renovated obstetrical unit should positively impact utilization and efficiency.
 The uncertain trend reflects unresolved issues at both the hospital and state level. The successful implementation of the hospital's recently instituted cost containment program and the need for strong management leadership and board oversight, improved medical staff relations and recruitment, and improved utilization reviews are critical credit factors which must be addressed to improve the hospital's ability to service its debt. The limited liquidity position requires constant supervision and proper controls. The resolution of the Medicaid claims processing problems with the state's intermediary will somewhat alleviate the pressure on cash flow.
 Unresolved state issues include the formula for and timing of the distribution of funds from the new uncompensated care fund and the extent and impact of the federal government's recoupment of the Medicaid overpayment to New Jersey.
 The obligated group consists of Palisades General Hospital Association (doing business as Palisades General Hospital) and Palisades General Care, Inc. The hospital is a 202-bed acute care facility located on the Hudson River in North Bergen, N.J. Palisades General Care owns the Harborage, a 180-bed skilled nursing facility and 60-bed residential care facility that opened in early 1992, and the Pavilion. The Pavilion is an ancillary facility that connects the hospital and the Harborage.
 -0- 1/6/93
 /CONTACT: Michele Cebron of Fitch, 212-908-0591/


CO: Palisades Medical Center ST: New Jersey IN: HEA SU: RTG

GK -- NY047 -- 2285 01/06/93 15:17 EST
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Publication:PR Newswire
Date:Jan 6, 1993
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