Sharon Regional Health System paid out $5 million as its portion in settling a high profile malpractice case, which resulted in the hospital system posting a $2.9 million loss in fiscal 2001, according to a report by a bond rating company.

The settlement contributed to a downward revision of its financial outlook by the rating company.

A loss in fiscal 2001 ending June 30, 2001, was widely expected as a result of the settlement. But a concern is preliminary results for the first five months of the current fiscal year shows Sharon Regional has only been able to generate a small $47,000 operating profit and that its bottom line has shown a $169,000 loss due to investment downturns.

With more than 1,700 employees, Sharon Regional is Mercer County's largest employer.

Financial figures on the non-profit health care provider surfaced in a report issued by Standard & Poor's, a New York bond rating firm. S&P downgraded Sharon Regional's outlook from stable to negative. However, Sharon Regional continues to maintain its A- rating, which reflects "a solid business position in a competitive market in Mercer County,'' S&P said.

Still, Sharon Regional needs to do better in order to keep its current bond rating, said Martin D. Arrick, an S&P manager.

"This can be viewed as a shot across their bow,'' Arrick said. "They need to do better or their bond rating will go down.''

But he noted even if Sharon Regional's bond rating was dropped several notches, it would still maintain the coveted investment-grade status. The next lower category, non-investment grade, is considered a speculative investment.

Bond ratings are important because it largely determines what interest rate a company or organization has to pay to attract investors. A lower bond rating means an organization will have to pay a higher interest rate, which means it will have to dole out more money.

Overall, a negative outlook means that over one to three years there's a better chance the rating will go lower. But a better chance doesn't mean it's definite, Arrick noted.

"There's an opportunity here for folks at Sharon Regional to have an impact on things,'' he said. "Naturally, I don't think it would in any way be surprising to know they could be doing better and they want to be doing better in terms of their finances.''

Although the $5 million payout for the malpractice case is certainly important and something to be aware of, Arrick called it "a one-time hit.'' Far more important is Sharon Regional's profits generated from ongoing operations, he said.

"It sort of tells you that it's clear they're not doing as well as they have been in the past, which to me is more telling than anything else,'' Arrick said.