Standard & Poor's Corp. earlier this month affirmed ratings on the debt of four not-for-profit multispecialty group practices and faculty practice plans and assigned one new rating to a stand-alone clinic.
The review was part of a special report in Standard & Poor's CreditWeek Municipal updating its ratings criteria for physician groups and faculty practice plans.
The New York-based credit-rating agency affirmed investment-grade ratings on the debt of University of North Carolina Physicians and Associates (AA-/A-1+), University of Virginia Health Services Foundation (A+) and University of Michigan Board of Regents, on behalf of its Medical Service Practice Plan (AA-). An investment-grade rating ranges from AAA to BBB.
It also affirmed the underlying rating of A on Marshfield (Wis.) Clinic and assigned an underlying rating of BBB+ to Duluth (Minn.) Clinic. The underlying ratings reflect the strength of the credit without enhancements. However, both clinics have bond insurance, and a portion of Marshfield Clinic's debt is backed by a letter of credit.
The five strong ratings reflect Standard & Poor's belief that "physician groups and faculty practice plans are well positioned to deliver efficient, high-quality care in a low-cost setting." In addition, the agency said its ratings of faculty practice plans "reflect actual and implied support from related universities and hospitals."
When evaluating such not-for-profit physician groups, Standard & Poor's said it analyzes operations, competition, physicians, leadership, institutional relationships, information systems, finances and legal covenants. It begins with a review of the group's history, structure and longevity.
Standard & Poor's won't rate the debt of for-profit group practices because "the financial and operational incentives of a proprietary group are generally not consistent with the capital retention levels necessary for an investment-grade rating," the company said.
To assess a group's financial strength, Standard & Poor's reviews five years of audited financial statements. The five rated groups have total practice revenues ranging from $55.3 million to $231.7 million. Profit margins start at 3.3% and reach 20.8%. The groups' debt service coverage ranges from 1.3% to 3.6%.