Larger numbers of not-for-profit hospitals fell from investment-grade into speculative-grade financial ratings in the past year and the trend is expected to continue, according to a release from Standard & Poor's.
"Not-for-profit hospitals and health systems on the lower end of the rating spectrum continue to face numerous challenges, which have resulted in a disproportionately larger percentage of downward rating actions within the speculative-grade category and a greater number of providers joining the speculative-grade ranks," the company stated.
Despite the increase in downgrades to speculative grade, the total number of hospitals with a speculative-grade rating actually decreased. This is because an even greater number of speculative-grade hospitals had their ratings withdrawn for reasons such as refunding of bonds and defaults. "The decline in the number of providers is thus not a sign of stability within the group, but rather, in our view, indicative of the more volatile nature of these credits," the company stated.
Standard & Poor's expects the instability to continue as vulnerable hospitals wrestle with softer volumes, potential state Medicaid funding or eligibility changes, high bad debt and charity care, capital needs for healthcare IT investment and upkeep of their physical plants. The company also cited lower Medicare inpatient payments in fiscal 2011 and longer-term effects of the healthcare reform such as penalties for readmissions and hospital-acquired infections as well as added costs for physician integration.
Read the Standard & Poor's release on financial ratings (pdf).
Read more on financial ratings:
-Moody's Downgrades 268 Nonprofit Healthcare Bonds, Citing Stricter Methodology
-Moody's: Despite Financial Improvements in 2009, Outlook for Non-Profit Hospitals Remains Negative
-Moody's Says FY 2011 Medicare Cuts Will Hurt Non-Profit Hospitals
"Not-for-profit hospitals and health systems on the lower end of the rating spectrum continue to face numerous challenges, which have resulted in a disproportionately larger percentage of downward rating actions within the speculative-grade category and a greater number of providers joining the speculative-grade ranks," the company stated.
Despite the increase in downgrades to speculative grade, the total number of hospitals with a speculative-grade rating actually decreased. This is because an even greater number of speculative-grade hospitals had their ratings withdrawn for reasons such as refunding of bonds and defaults. "The decline in the number of providers is thus not a sign of stability within the group, but rather, in our view, indicative of the more volatile nature of these credits," the company stated.
Standard & Poor's expects the instability to continue as vulnerable hospitals wrestle with softer volumes, potential state Medicaid funding or eligibility changes, high bad debt and charity care, capital needs for healthcare IT investment and upkeep of their physical plants. The company also cited lower Medicare inpatient payments in fiscal 2011 and longer-term effects of the healthcare reform such as penalties for readmissions and hospital-acquired infections as well as added costs for physician integration.
Read the Standard & Poor's release on financial ratings (pdf).
Read more on financial ratings:
-Moody's Downgrades 268 Nonprofit Healthcare Bonds, Citing Stricter Methodology
-Moody's: Despite Financial Improvements in 2009, Outlook for Non-Profit Hospitals Remains Negative
-Moody's Says FY 2011 Medicare Cuts Will Hurt Non-Profit Hospitals