Moody's Investors Service has affirmed its rating on Queen's Health System's $385 million of total debt, saying Queen's has been gaining market share while nurturing a good reputation for its medical services.

Queen's Health System "maintains a strong market position in a competitive service area as the largest single-site tertiary provider in the state of Hawai'i," Moody's analysts Brad Spielman and Lisa Goldstein wrote in a report.

The financial ratings service affirmed the "A1" debt rating for Queen's, or two grades below it's highest rating, and said the long-term rating outlook was stable.

It also affirmed a "P-1" rating on Queen's commercial paper notes.

Moody's said Queen's has about 27 percent of O'ahu's hospital market and is only second to Hawaii Pacific Health, which has 30 percent of the market with its Kapi'olani Medical Center for Women and Children, Straub Clinic & Hospital and Kapi'olani Medical Center at Pali Momi.

Other major providers on O'ahu include Kaiser with 14 percent, Hawaii Medical Center with 10 percent and Kuakini Health System with 8 percent.

Queen's "historically has been recognized for its provision of high-end clinical services in Hawai'i, particularly in cardiology, oncology, neuroscience and orthopedics services," the Moody's report said.

"Despite QHS's market distinction, the O'ahu market where QHS is located is very competitive and QHS has long maintained a close second with respect to market share to the three-hospital system Hawaii Pacific Health."

Moody's analysts said Queen's inpatient admissions had been growing at an average of 3.5 percent during the past four years and that its outpatient volume is showing strong growth.

At the same time, though, Moody's said the hospital system has faced challenges from low insurance reimbursements and high labor costs.

A separate study for the Healthcare Association of Hawaii last year found Medicare, Medicaid and Quest payments to hospitals are below expenses and that Hawai'i's hospital costs for providing care exceeded payments to hospitals by $150 million in 2006.

Moody's said The Queen's Medical Center, the 533-bed hospital that makes up the bulk of Queen's Health Systems, had an operating loss of $5.5 million in fiscal 2007.

"Management is in the process of bringing greater discipline to the running of The Queen's Medical Center and believes Queen's Medical Center will again produce a positive contribution margin in fiscal year 2008," Moody's said.

It said Queen's should produce significant improvements this year compared to last year.

Reach Greg Wiles at gwiles@honoluluadvertiser.com.