Things are looking up at Cullman Regional.

With surging patient volume and revenue, Fitch Ratings has upgraded the hospital’s outlook from stable to positive while affirming its BBB- rating through the Health Care Authority of Cullman County on $59.1 million in bonds.

The stellar financial report is based on the hospital’s continued strong operating profitability, with revenues growing 25 percent over the last four fiscal years and a 9.5 percent operating margin in 2017, above Fitch’s ‘BBB’ median of 0.9 percent. The recent trend in profitability is primarily due to higher inpatient volume combined with the hospital’s low-cost operating model.

“We are proud about the positive future of healthcare for our community,” said Mary Beth Sellers, Cullman Regional’s public relations coordinator

Fitch said operations have improved significantly since 2013 due to the successful implementation of revenue-cycle improvements and cost-cutting initiatives. Cullman Regional’s days in accounts receivable improved from a high of 60.4 days in fiscal 2012 to 37.5 days in fiscal 2015, where it has remained at this low level for the past two years.

Cullman Regional’s designation as a sole community provider hospital and 46 percent market share — up from 40 percent in 2013 — in its primary service area (PSA) allow it to benefit from strong volumes, favorable payor contracts, and enhanced Medicare reimbursement. The hospital has a 60 percent market share in Cullman County, from where it derives the majority of its admissions.

Fitch says the positive profitability trend has also been supported by enhanced marketing efforts that target patients in the secondary market area and a stable local economy.

Meanwhile, work is winding down on two major capital projects — the fifth-level patient tower expansion and new urgent care/imaging facility. The total cost of the projects is approximately $20 million, which Fitch expects will be funded primarily from 2018 cash flow, with little to no cash decreases.

The $14 million 30-bed addition to its inpatient tower is aimed at addressing growing inpatient volumes, and the smaller project includes the construction of additional outpatient urgent care facilities on the current hospital campus with the goal of relieving emergency department overflow and improving margin on outpatient visits.

Longer term, Fitch projects the hospital may need to employ physicians to support the community’s medical needs as well as possibly invest in a new electronic medical record system.

Cullman Regional is expected to maintain operating profitability at levels near those reported over the past three fiscal years, according to the report. Continued improvement in liquidity and moderating debt burden could allow for positive rating action in the near term, Fitch says. However, any significant disruption in profitability may result in a revision of the outlook back to stable.

Personnel costs were a low 46 percent of total revenues in fiscal 2017, favorable to the 54.4 percent median, though this is partially due to a very small staff of employed physicians. Looking ahead, Cullman Regional plans to bring more physician services in-house in the near to intermediate term. The hospital currently employs three cardiologists and no other hospitalists or physicians.

With the changing trend in healthcare, Fitch said hospital management anticipates “over the longer term the hospital may need to take on more employed specialists.”

Further improvements to the hospital’s electronic medical records system will likely require significant investment in the long term, but no decisions have been made as of this time, according to the report. Depending on the level of investments in outpatient services, physicians or electronic medical records, Fitch said it believes Cullman Regional may be able to fund some of these strategic initiatives at the current rating level, especially given the improved level of cash flows in recent years.