Hospital ratings in Southern California -- the epicenter of managed-care penetration -- are looking noticeably less shaky.
A Dec. 15 feature article in Standard & Poor's CreditWeek Municipal says ratings of not-for-profits in the region have stabilized in the past two years, resulting in ratings affirmations for most of the region's issuers and some ratings increases.
The New York-based rating agency attributes the improvement to "unrelenting industry consolidation" and mergers with higher-rated organizations.
However, the article notes that consolidation doesn't always boost credit quality. As an example, Standard & Poor's says it assigned a negative outlook for Memorial Health Services, Long Beach, which issued $100 million in debt late in 1996. That issue helped finance the acquisition of Orange Coast Memorial Medical Center, but it raised the system's debt-to-capital rate to 47% from 34%.
Meanwhile, the market's heavy managed-care penetration continues to drive down utilization.
According to the article, "many Southern California hospitals are unable to break even on patient care and must rely on investment income to survive."