Municipal healthcare ratings remained "under pressure" in the first quarter of the year as providers experienced the effects of consolidation and reimbursement constraints, Standard & Poor's Corp. reported last week.
In the first three months of the year, downgrades of municipal healthcare debt outpaced upgrades by a 2.5-to-1 ratio, the New York-based credit-rating agency said. By comparison, the ratio of downgrades to upgrades was 2-to-1 in the year-ago period.
Ratings were lowered on five issues totaling $217.4 million and raised on two issues totaling $107.7 million.
Moody's Investors Service also released its ratings changes on tax-exempt healthcare debt for the quarter. Contrary to Standard & Poor's, Moody's raised more ratings than it lowered, reporting five upgrades on $231.6 million in debt and three downgrades on $176 million.
However, the credit-rating agency said one quarter of rating changes doesn't establish a trend-more downgrades of healthcare debt are expected in the future.
One common thread among the Standard & Poor's downgraded hospitals is that they're located in competitive markets, Standard & Poor's said. For example, the agency lowered the rating of New England Baptist Hospital in Boston to BBB+ from A "because of a sharp decline in admissions, greater competition in a consolidating market and weak financial performance."
Hospitals whose rates were raised showed improved financial, operational and competitive performance, Standard & Poor's said. For example, the upgrade of Medical College of Virginia Hospitals, Richmond, to AA-from A+ reflects its improved operating performance, an accumulation of cash and its better competitive position. Its recent affiliation with a nearby hospital gives it a stronger managed-care contracting position, the rating agency said.
The industry is responding to the possibility of federal healthcare reform by consolidating to reduce duplicative services and cut costs. Such efforts "should allow greater earnings and cash accumulation and could help stabilize credit quality in the healthcare sector," Standard & Poor's said.