The average multistate hospital system became financially stronger in the five-year period from 1989 through 1993, according to a report by Moody's Investors Service.
During that period many financial ratios showed improvement. For example, the systems' median operating margin rose to 4.5% in 1993 from 3% in 1989.
The report provides financial and utilization medians for 24 multistate hospital systems in Moody's database. The systems' outstanding debt totaled $8.5 billion.
Bruce Gordon, assistant vice president and supervisor in Moody's public finance department, attributed systems' improvement to multiple factors, including their diversity, leverage in contracting with managed-care organizations and economies of scale attained through shared resources.
Generally, systems with higher debt ratings have ratios that exceed those of lower-rated systems. However, the report shows numerous instances in which lower-rated systems had stronger ratios. "The apparent anomaly suggests that credit criteria other than financial ratio performance are more important in determining the debt rating," New York-based Moody's observed.
An industry can't be rated strictly on financial ratios, Gordon admitted. Nevertheless, ratios are a good indicator of performance, he said. "I think ultimately those hospitals and hospital systems that take the right steps, make the right strategic moves, will show strong financial numbers."
The report includes two new financial ratios. "Operating cash-flow margin" measures a system's ability to manage day-to-day, variable costs by excluding interest and depreciation expenses. "Debt to net revenue available for debt service" measures market leverage by relating a system's balance sheet debt load to its ability to generate cash flow.
The report excludes occupancy rate as a key indicator. That factor, Gordon said, has "lost a lot of importance" in the current environment. The report does, however, include admissions, which remain an important measure of success in most parts of the country where hospitals are still reimbursed on a per-diem or discounted fee-for-service basis, he said.
Moody's intends to publish an updated version of its multistate hospital systems report later this year once it has received a complete set of 1994 audited financial statements.