Mixed credit grades for nonprofit hospitals reflect uncertainty

A major bond rating service says systems' margins are going down, a sign of growing financial pressure.

By Carolina Procter — Posted Aug. 27, 2007

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

Moody's Investors Service issued more downgrades than upgrades for nonprofit hospital credit ratings in the second quarter of 2007.

Although experts say the 1.3-1 ratio actually is better than it has been in times past, it is not certain when that trend will reverse.

Moody's downgraded 12 ratings and upgraded nine from January to March.

The ratings represent Moody's grades on hospital-issued bonds. A downgrade generally causes a decline in the market price of a bond, which is often traded after it is sold.

More important for the hospitals, a downgraded rating means that a system likely would have to pay out a higher interest rate for any future bond offering.

For upgrades, the opposite occurs -- the market price rises, and the interest rate falls.

For the full first half of the 2007 fiscal year, the downgrade-to-upgrade ratio was 1.4-to-1, which beats the 1.5-1 ratio from the first half of 2006.

Upgrades last outpaced downgrades during the 2005 fourth quarter, by a difference of 11 to 7, according to Moody's.

"The industry right now is fairly stable," said Lisa Martin, Moody's senior vice president.

"It's closer to a 1-1 ratio than we've seen historically. For the short term, we see relative stability, because we're seeing operating performance at peak levels. It's a relatively favorable reimbursement environment in terms of the rate increases hospitals get under Medicare and commercial payers," Martin said.

The two- to three-year outlook is more uncertain, she said.

"We're starting to see the very, very beginnings of some greater operating challenges for hospitals," Martin said. "That's related to patient volume trends that are fairly flat. There's a very low growth of admissions and outpatient procedures."

Catherine Jacobson, the chief financial officer of Rush University Medical Center in Chicago and secretary-treasurer of the Healthcare Financial Management Assn., said nonprofit hospital system operating margins were still strong but were starting to weaken.

"Volume is soft, and it's continuing to remain soft. There are expense increases in supplies, cost and bad debt," she said. "Debt leverage positions are weakening, and that's mainly because [hospitals] are borrowing more money than ever because of the great deal of capital spending going on."

Jacobson said operating margins are strong compared with past levels, but they're not keeping pace with the trends on expenses.

Martin said operating margins peaked in 2005 and started to moderately decrease in 2006.

Back to top



Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story

Read story


American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story

Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story

Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story

Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story

Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story

Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story

Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story

  • Stay informed
  • Twitter
  • Facebook
  • RSS
  • LinkedIn