Stand-alone hospitals shouldn't rely exclusively on financial ratios to assess their credit quality, Standard & Poor's Corp. said last week.
In issuing its annual update of hospital ratios, the New York-based credit-rating agency said that during this time of upheaval in the healthcare industry, other business fundamentals must be considered as well.
"The ratios themselves are not good predictors of credit quality," said David Peknay, a director in Standard & Poor's Municipal Finance Department. Market position, institutional characteristics and operating efficiencies also must be weighed, he said. Factors such as location and attractiveness to managed-care plans can affect credit quality, he said.
Standard & Poor's update of not-for-profit hospital ratios appeared in last week's CreditWeek Municipal.
Not surprisingly, hospitals in nearly every category had slimmer operating and profit margins in 1993. For example, the operating margin for an A-rated hospital fell to 3.54% in 1993 from 4.81% the previous year. And the median profit margin for hospitals in that category dipped to 5.51% in 1993 from 6.6% the previous year.
Because more hospitals are joining systems and more bonds are being sold with insurance, the number of stand-alone hospitals is shrinking. That's jeopardizing the future of Standard & Poor's annual update of not-for-profit hospital ratios, the agency said. This year's update won't be the last, but at some point the number of facilities eligible to be included in the sample will deteriorate, Mr. Peknay said.