Fitch downgrades Nebraska hospital deeper into junk

Fitch Ratings downgraded Nebraska's Regional West Health Services by two notches deeper into speculative grade, lowering its long-term issuer default rating to CCC from B-minus.

The downgrade affects the healthcare network's Series 2016A bonds, issued through Hospital Authority No. 1 of Scotts Bluff County. Both ratings have been removed from Rating Watch Negative; Fitch doesn't usually assign outlooks to CCC-category ratings.

Fitch defines a CCC rating as having a "very low margin for safety. Default is a real possibility."

RWHS is a nonprofit corporation that runs Regional West Medical Center, a general hospital in Scottsbluff, Nebraska, with 188 acute care beds.

The December downgrade stemmed primarily from the network's ongoing negative cash flow generation in fiscal year 2025 ? a result of persistent operating challenges, Fitch said.

The rating agency also highlighted RWHS's "very weak" liquidity. The network had only 14 days cash on hand as of Sept. 30. The network's bonds do not have a days cash on hand covenant.

"Fitch considers RWHS's liquidity position to be a primary credit risk and an asymmetric risk to the organization," Fitch said in its rating report.

The balance sheet deterioration resulted from RWHS's electronic medical record EPIC conversion. That October 2024 effort wound up "compound(ing) ongoing profitability challenges," Fitch said.

The network launched an operational turnaround campaign in spring 2025 geared toward optimizing revenue and cutting expenses. But according to Fitch, management has grappled with cost containment due to reliance on expensive agency labor and competitive wage pressures in recruiting.

The rating agency still labels RWHS's operating performance "very weak," but noted that operations have begun to improve in the first nine months of the fiscal year, with an operating EBITDA of negative 4.2% and EBITDA of negative 3.7% as of Sept. 30, 2025. That's compared to operating EBITDA of negative 7.2% and EBITDA of negative 6.4% in fiscal year 2024.

Management told Fitch the network is now seeing benefits from the conversion to EPIC and a decrease in agency labor, partly a result of cutting the number of operational beds.

RWHS aims to generate positive operating cash flow in fiscal 2026 via Nebraska's Medicaid Directed Payment Program. It hopes for further cost savings through the roll off of the current electronic health record provider Cerner; the use of group purchasing; renegotiated vendor contracts and continued recruitment efforts.

But Fitch said more cost savings will be necessary to achieve breakeven core operating metrics without leaning on Nebraska Medicaid Directed Payment Program funds.

On the bright side, the network has limited capital expenditures that averaged 38% of depreciation over the last five fiscal years. While spending has ticked up from investments like a new orthopedic surgery robot and an interventional radiology suite, Fitch expects capital spending to remain below depreciation.

The network has a high average age of plant: 28 years at fiscal year's end 2024.

The hospital's service area has weak demographic characteristics, including a declining population and median household income and poverty levels that are unfavorable compared to state and national averages. "However, RWHS is the largest provider within 150 miles, and no other hospital in its primary, secondary, or tertiary service areas has more than 25 licensed beds," Fitch said.

The network's financial metrics were "very weak" as of Sept. 30, Fitch said. RWHS's cash-to-adjusted debt was 20.3%, not including $4.6 million in board designated funds for capital improvement.

"Financial turnaround and EMR improvement efforts are underway, but the balance sheet remains very thin, and a very limited margin of safety remains," Fitch noted. "Capacity for continued payment is vulnerable to deterioration in RWHS's business and economic environment."

The bonds have been at speculative grade since 2019, when Fitch downgraded them to BB-plus. The rating had been on rating watch negative since July, when Fitch downgraded Regional West to B-minus from BB-minus.

Fitch did not respond to questions by press time. RWHS did not respond to a request for comment.