To your credit: the upside of ousting boards and executives

Outmatched board members would be ousted from New York hospitals by the state under a proposal released last week by notable health policymakers. Poorly performing hospital executives would meet the same fate, my colleague Paul Barr reports in this week's magazine.

It is an idea that won endorsement from the credit-rating firm Moody's Investors Service. Analysts acknowledge that expanded government authority does not usually bode well for hospital credit strength. Yet New York hospitals, which are financially weaker than U.S. hospitals in Moody's portfolio, could apparently use the help. Investors could benefit, Moody's said, “as it would help more quickly stabilize struggling hospitals and provide quicker relief for bondholders by likely averting a payment default.”

In a note, Moody's wrote: “Government intervention is not typically a credit positive for competitive hospitals, but the ability for the state to force change in distressed hospitals' boardrooms and executive suites, well beyond what most bond industries prescribe, likely accelerates financial improvement and makes organizations more responsive to change.”

But directors and trustees outside of New York take note: Some experts told Barr that the strategy could be employed across the country.

You can follow Melanie Evans on Twitter: @MHmevans.