For the first time in a decade, Standard & Poor's Corp. raised more ratings of not-for-profit hospitals and healthcare institutions last year than it lowered.
The New York-based credit-rating agency last year upgraded 63 hospital and healthcare ratings representing $2.4 billion of debt and downgraded 55 ratings on $1.9 billion of debt.
A year earlier, downgrades outpaced upgrades by more than 10 to 1, with 19 ratings increases on $1 billion of debt and 194 decreases on $3.3 billion of debt.
"1995 obviously was a very significant year for us," said Ken Rogers, a director in Standard & Poor's healthcare ratings group. The volume of upgrades indicates that providers are beginning to realize efficiencies, eliminate duplicate services and lower their costs of doing business, he said.
However, the seemingly positive news for healthcare credits in 1995 must be viewed in the broader context of industry downsizing and consolidation, the rating agency cautioned.
Providers first pursued horizontal consolidation and now they're integrating vertically to create comprehensive delivery systems. "The transition hasn't stopped," Rogers said. "We're probably in the middle of it."
According to Standard & Poor's, upgraded institutions affected more debt because they tend to be larger and carry more debt.
Many of the upgrades resulted from mergers and acquisitions, the agency said. For example, St. Anthony's Medical Center in St. Louis was upgraded because of its merger with Sisters of Mercy Health System.
By contrast, many of the downgraded institutions are generally "smaller, single-site facilities that have not reacted quickly enough to industry trends and have less debt outstanding," Standard & Poor's said. Downgrades also affected larger, higher-cost hospitals in overbedded urban areas with rapid managed-care growth, the agency noted.
With the forces of change varying by market, healthcare ratings in the municipal sector are far from stabilized, Standard & Poor's concluded. And, for hospitals that have failed to react, more downgrades are in store.
"There still are, unfortunately, a number of providers out there who are acting as if the world hasn't changed," Rogers said.
By contrast, the outlook for for-profit healthcare providers is more positive. In 1995, Standard & Poor's raised 16 corporate healthcare ratings, affecting $3.9 billion of debt, and lowered eight ratings, affecting $2.5 billion of debt.
Among the healthcare corporations whose debt was upgraded were American Medical International, to BB from BB-; Healthtrust, to BBB from B; and Quorum Health Group, to B+ from B-. AMI was acquired by National Medical Enterprises last year and is now Tenet Healthcare Corp,. and Healthtrust was purchased by Columbia/HCA Healthcare Corp.