Academic medical centers are among the strongest-rated credits in the healthcare space and have an edge on other nonprofit hospitals to survive tough financial times like today, according to a report from Moody's Investors Service.
Moody's rates 85 academic medical centers, which the agency defined as a major hospital that receives more than $50 million per year in National Institutes of Health funding. Overall, the median rating for an AMC is "A1," which is two rating notches higher than the median "A3" credit rating for all nonprofit hospitals.
AMCs have better financial positions for several reasons. According to financial medians from fiscal year 2012, Moody's found AMCs have larger revenue bases and generally stronger market positions than the average nonprofit hospital. For example, AMCs had median operating revenue of $1.2 billion, compared with $527.6 million for all nonprofit hospitals. Nearly 38 percent of AMC revenue comes from commercial payers, higher than the average nonprofit hospital, as AMCs are often considered "must-haves" in payer networks.
One of the biggest advantages for AMCs is their ties to large, renowned research universities. This not only helps cement their market position as a clinically important provider of high-acuity cases, but it also leads to unparalleled opportunities for fundraising.
"AMC hospitals benefit through strategic and financial collaboration, coordinated fundraising or direct university financial assistance or liquidity support to the hospital during challenging financial times," Kimberly Tuby, Moody's vice president and senior credit officer, said in a news release. "Further, healthy relationships with universities can help strengthen an AMC hospital's brand and name recognition, market position and enhance physician and patient recruitment."
However, AMCs "are not immune to the credit risks facing the healthcare industry," according to Moody's. AMCs and nonprofit hospitals had similar median operating margins in 2012 (2.7 percent for AMCs and 2.5 percent for nonprofits), but AMCs had weaker cash flows (9.1 percent median operating cash flow margin for AMCs and 9.5 percent for nonprofits). AMCs have significant expenses, and their expense growth has outpaced revenue growth for two straight years.
AMCs also usually have more Medicaid patients (18.5 percent median Medicaid exposure compared with 13.1 percent for all nonprofit hospitals), and they must contend with pressure surrounding graduate medical education funding and NIH cuts.
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