S&P report: Median ratios for non-profit hospitals could weaken in 2013
Analysts expect ratios to soften due to the pressures of healthcare reform
A recent Standard & Poor's Rating Services report says that while the 2012 medians for U.S. not-for-profit healthcare systems remained steady following 2011, the median ratios are likely to weaken this year.
Medians for healthcare systems remained stable in 2012 because improved operating efficiencies and system growth were almost evenly balanced by numerous operating burdens related to healthcare reform, increased costs, lower volumes, rising bad debt and charity care, growing costs from employed physicians, and weaker rate increases from payers, according to the report.
[See also: S&P report shows healthcare cost growth slowing]
Changes due to healthcare reform will exert incremental pressure, gradually softening ratios in the next one to two years, said Standard & Poor's credit analyst Kenneth Gacka, in a written statement.
Jennifer Soule, a director for the public finance group at Standard & Poor’s, added that hospitals and healthcare systems will continue to see strain on their operating budgets going forward.
“Through many conversations with providers, most are saying volume is down and revenue is slowing or declining. Credit profiles will weaken overall,” she said.
[See also: S&P: Healthcare costs continue to rise, but at a slower pace]
According to the report, Standard & Poor's rated 144 health systems, which are defined as organizations with three or more hospitals that have some economic, business or geographic dispersion.
Healthcare systems, particularly at the higher end of the credit spectrum, seem to be much better prepared in general compared to stand-alone hospitals when it comes it comes to the ongoing changes in the industry, said the report.
Additionally, Standard & Poor’s expects healthcare reform to continue to drive industry consolidation.
“Overall, we’re seeing providers – whether stand-alone or not – being more conservative and working on cost cutting,” said Soule. “From a credit risk perspective, we wonder how long they can cut costs before it strains operating budgets costs and making profits in future years. Providers seem to be moving in the right direction by cutting costs and building up cash revenues now.”
[See also: S&P says U.S. not-for-profit healthcare sector is stabilizing]
