The shift away from acute-care settings is creating growth opportunities for long-term-care companies, but it's also adding more debt to the companies' balance sheets, according to a recent report from Standard & Poor's Corp.
As a result, low, speculative-grade credit ratings are likely to persist, the New York-based rating agency said.
Since 1991, seven of the nine long-term-care companies rated by Standard & Poor's have become new public borrowers, with $1.5 billion of rated debt. Only one company, Silver Spring, Md.-based Manor Care, rated BBB-, has an investment-grade rating.
The other six borrowers are Beverly Enterprises (BB-), Genesis Health Ventures (B+), GranCare (B+), Hillhaven Corp. (B+), Integrated Health Services (B+) and the Multicare Companies (B+).
Because of increased demands for lower-cost healthcare settings, long-term-care companies are introducing new programs and aggressively acquiring additional properties, Standard & Poor's said. For example, several companies have purchased subacute-care organizations to expand their networks of care, and others are adding pharmacy operations and rehabilitative services to generate more revenue.
However, long-term-care companies face the risk of further controls on Medicare payments and continued uncertainty about the adequacy of Medi-caid reimbursements.
Further consolidation in the fragmented long-term-care industry will require substantial new investments, the agency said. Companies' reliance on debt will continue to be a key rating concern, it said.
The analysis appeared in the Sept. 5 issue of Standard & Poor's CreditWeek.