Many Not-For-Profit Hospitals Have Credit Ratings Downgraded This Year, Report Finds

Main Category: Public Health
Article Date: 27 Aug 2008 - 12:00 PDT

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Downgrades in the credit ratings of U.S. not-for-profit health care systems and hospitals exceeded upgrades by a 2-to-1 ratio this year for the first time since 2003, according to a report released on Monday by Standard & Poor's Ratings Services, the Arkansas Democrat-Gazette reports. The report examined trends at the 138 not-for-profit health care systems and 470 stand-alone hospitals that S&P rates (Arkansas Democrat-Gazette, 8/26).

According to the report, downgrades in the credit ratings of many of the health care systems and hospitals resulted from costs associated with large capital projects and additional debt issuance "despite the issuers' operating strength" and a recent collapse of the auction-rate securities market (Pierog, Reuters, 8/25). The report also cited increased charity care and increased dependence on government and individuals to pay for medical services. In a statement, S&P credit analyst Martin Arrick said, "We expect the number of downgrades to exceed upgrades for the rest of 2008 and probably in 2009, as business and financial challenges squeeze operating margins and weaken balance sheets" (Arkansas Democrat-Gazette, 8/26).

Meanwhile, according to a report released on Monday by Moody's Investors Services, the weak economy likely will limit patient volume growth for not-for-profit health care systems and hospitals in many markets and increase charity care and uncollectable patient debts. Mark Pascaris, assistant vice president and analyst at Moody's and author of the report, said, "Much of the operating pressure on the industry that we first observed in the (fiscal year) 2006 medians has continued into 2007, and we expect these pressures to continue in the next fiscal year, especially given the materially weaker economy," adding, "There is also greater pressure from commercial insurers to limit rate increases" (Reuters, 8/25).

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