Five of the six non-profit hospitals downgraded by Moody's Investors Service in the first quarter were small hospitals with less than $500 million in annual revenue, keeping true to a multiyear downward trend for small providers in an ever-consolidating healthcare sector.
Smaller hospitals are more vulnerable to current market challenges because they lack bargaining power with payors, suppliers and vendors, as well as economies of scale that allow for increased efficiency, according to Moody's first quarter report on the U.S. non-profit hospital sector. Additionally, the report noted, they rely too heavily on several key physicians, which creates for volatility in their finances when such specialists leave.
The credit rating agency specifically called out Winston-Salem, N.C.-based Wake Forest Baptist Medical Center and Inverness, Fla.-based Citrus Memorial Hospital, which both received downgrades as they struggle to implement new technology platforms and maintain operating margins.
Moody's downgraded a total of $988 million in non-profit hospitals' debt in the first quarter of 2013, about 50 percent more than the $658.1 million of debt it upgraded in the sector. The downgrades were assigned despite the fact five of the downgraded hospitals averaged only $77.8 million in debt — far less than half the national median of $191.9 million.
Moody's predicted downgrades will exceed upgrades in the second quarter of 2013 as well and casted a gloomy forecast for small hospitals under the $500 million benchmark for annual revenue. Of its three non-profit hospital upgrades in first quarter 2013, two were above that threshold and had several years of accelerating financial, patient volume and market share growth.
Compared with first quarter 2012's 22 rating changes of non-profit hospitals, split evenly between upgrades and downgrades, this quarter's nine changes leaned toward the negative side. Still, 86 percent of Moody's 55 ratings in the last quarter were affirmations, affecting a total of $25.3 billion of debt.
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Smaller hospitals are more vulnerable to current market challenges because they lack bargaining power with payors, suppliers and vendors, as well as economies of scale that allow for increased efficiency, according to Moody's first quarter report on the U.S. non-profit hospital sector. Additionally, the report noted, they rely too heavily on several key physicians, which creates for volatility in their finances when such specialists leave.
The credit rating agency specifically called out Winston-Salem, N.C.-based Wake Forest Baptist Medical Center and Inverness, Fla.-based Citrus Memorial Hospital, which both received downgrades as they struggle to implement new technology platforms and maintain operating margins.
Moody's downgraded a total of $988 million in non-profit hospitals' debt in the first quarter of 2013, about 50 percent more than the $658.1 million of debt it upgraded in the sector. The downgrades were assigned despite the fact five of the downgraded hospitals averaged only $77.8 million in debt — far less than half the national median of $191.9 million.
Moody's predicted downgrades will exceed upgrades in the second quarter of 2013 as well and casted a gloomy forecast for small hospitals under the $500 million benchmark for annual revenue. Of its three non-profit hospital upgrades in first quarter 2013, two were above that threshold and had several years of accelerating financial, patient volume and market share growth.
Compared with first quarter 2012's 22 rating changes of non-profit hospitals, split evenly between upgrades and downgrades, this quarter's nine changes leaned toward the negative side. Still, 86 percent of Moody's 55 ratings in the last quarter were affirmations, affecting a total of $25.3 billion of debt.
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