Fitch downgraded Escondido, Calif.-based Palomar Health's rating to "B" from "B-" reflecting continued financial pressure over the past 18 months.
Palomar reported a $165.1 million operating loss (-18.5% margin) in fiscal 2024, which ended June 30. Through the first half of fiscal 2025 (ended Dec. 31), the two-hospital system reported an operating loss of $65.5 million (-13.8% margin).
Fitch said in its March 14 report that while it still views the system's financial performance as weak, operations have "begun to demonstrate some improvement since fiscal 2024's low point."
Fitch's downgrade comes one month after Moody's lowered Palomar's rating to "Caa1" from "B2." Moody's said in its Feb. 12 report that high expenses, large physician subsidies and an increasing governmental payer mix will continue to challenge performance. The ratings agency did note that the system, with consulting help, has identified opportunities for performance improvement in fiscal 2025. Those include potential savings related to its labor force, revenue cycle, physician enterprise, supply chain and purchased services.
Both Fitch and Moody's also downgraded Palomar's ratings in 2024. Moody's downgraded Palomar's rating to "B2" from "Baa3" in October. Fitch downgraded the system to "B" from "BB+" in December.
Palomar has a negative outlook at its newest credit rating with Fitch, reflecting the "persistent and severe challenges" the system's management faces as they navigate "significant financial stress and uncertainty." Fitch said it may consider revising Palomar's outlook to stable if management succeeds with strategic and operational priorities over the next 18 months and improves operating performance and unrestricted balance sheet resources.
Palomar recently borrowed $20 million from UC San Diego Health to help the system continue to provide care to patients in the region. Palomar also recently told bond investors that it is halfway to its $150 million turnaround goal to stabilize its $700 million revenue bond debt.