Standard and Poor's Ratings Services recently announced its revised methodology and assumptions for rating standalone, nonprofit hospitals, according to an HFA Partners report.
It's not clear how the new criteria will impact hospitals, but is "a significant step forward in increasing transparency," according to the report.
Here are four things to know about the revised rating process:
1. S&P comes up with an initial indicative rating by combining an enterprise profile with a financial profile. There are multiple factors with each profile, and the factors are given fixed weights, according to the report. Each factor also has subfactors, which receive a fixed weight, along with a score. An analyst scores each factor, and the enterprise and financial profiles are then adjusted by four other parameters, according to the report. In the end, there are final profiles.
2. After S&P comes up with an initial indicative rating, overriding factors are applied, giving S&P its final indicative rating. Those overriding factors include "operational risk, extraordinary financial characteristics, distinct organization structure or specialty, and significant financial distress," according to the report. According to the report, each overriding factor has the capability to change the initial rating by "up to three notches," but most are limited to one notch in either direction.
3. A peer comparison also factors into S&P's final rating. The comparison can adjust the rating by one notch in either direction, according to the report. Peer groups could include other providers with similar ratings, market position, or scope of services.
4. S&P will apply the new criteria immediately. S&P plans to review standalone hospitals it believes could go up or down by one credit rating, according to the report. The rest of the standalone hospitals will be reviewed within the next year.
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