A major expansion that Mercy Hospital once planned to complete on the Fore River in 2019 will not get underway until 2021 or later.

A report by Moody’s Investors Service, a leading bond credit rating agency, said that the project was being delayed because of financial problems afflicting Mercy’s parent organization, Eastern Maine HealthCare Systems of Brewer. In the report released Wednesday. Moody’s downgraded the EMHS credit rating to junk bond status.

A Mercy official confirmed Friday that 2021 was the projected date when work would begin, but disputed Moody’s assertion that the credit rating downgrade had affected the hospital’s plans.

“Our project is right on schedule,” said Bruce Sandstrom, Mercy’s vice president of finance. “The fact that the downgrade occurred didn’t impact this project at all.”

In 2014, Mercy announced an $80 million to $100 million expansion project at its Fore River complex – including a hospital expansion and additional medical offices. The hospital said at the time that it expected the expansion to be completed in 2018, at which time Mercy would close its older campus on State Street in Portland’s West End.

The Fore River complex, which includes maternity, urgent care and other health services, opened in 2008.

Last year, in the course of announcing 31 layoffs, Mercy said the expansion would be completed in 2019, a year later.

The Moody’s report pushes the expansion project date back to at least 2021, saying that financial problems at EMHS have caused capital spending to be “restrained and deferred.”

“Consolidation of Mercy’s campuses has been put on hold; management indicated FY 2021 as the earliest to start the project,” the report said.

An institution’s bond rating is important because it affects the cost of borrowing money. As the credit rating goes down, financing costs go up, with substantial impacts for large capital projects.

Sandstrom said if EMHS is not able to improve its bond rating, the costs could threaten the viability of the Fore River expansion project or force Mercy to scale it back. “That would affect the financial feasibility of the project,” he said. “But Mercy is in a much better place than a year ago or two years ago.”

Sandstrom said he didn’t know why a hospital spokesman told the Press Herald last year that the Fore River project would be completed in three years because at that time the hospital was already planning for a 2021 construction start date.

In the 2014 IRS tax filings for nonprofits, the most recent publicly available, Mercy was operating with a $22 million loss. The hospital had $556 million in expenses compared to $534 million in revenue.

Sandstrom said he couldn’t discuss specific financial numbers, but said that Mercy is “basically breaking even” for the current fiscal year, which runs from October to September.

Cutting staff, canceling an outside contract that handled bill collection, and other measures have helped the hospital’s bottom line, Sandstrom said. Mercy, which has about 1,500 full- and part-time employees, offered buyouts to 99 employees in 2016.

Suzanne Spruce, EMHS spokeswoman, said Thursday that there’s “steady improvement” in the finances at Mercy, which EMHS purchased in 2013, and at Maine Coast Memorial Hospital in Ellsworth, which the system bought in 2015.

“We do look forward to revisiting our rating with Moody’s next year, when we expect to be able to demonstrate improvements to Moody’s satisfaction,” Spruce said.

The Moody’s report noted that EMHS has a relatively high number of uninsured patients, which contributed to its financial problems. The report also pointed out that Maine is a state that did not expand Medicaid.

Rachel Garfield, a senior researcher at the Kaiser Family Foundation, said there are many reasons why hospitals across the country are struggling financially, but researchers have found more problems in states that did not expand Medicaid.

“There are many hospitals across the country that are facing difficult financial times,” Garfield said. She said hospitals are especially vulnerable if they are in rural areas or primarily serve low-income populations, or if they fail to boost outpatient services such as rehabilitation and physical therapy, which are in increasing demand.

Andrew Coburn, a public health research professor at the University of Southern Maine, said he’s “not surprised” by the Moody’s downgrade or that the Fore River expansion has been pushed off several years.

“Mercy has been losing money, and so finding the money to take on a capital improvement project in this climate just wasn’t going to happen in the near future,” he said.

Joe Lawlor can be contacted at 791-6376 or at:

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