Medicare cost controls, a tight labor market and failed integration strategies are hurting hospitals nationwide. Yet geography continues to be an overriding factor when it comes to an organization's financial health.
That point was driven home in Moody's Investors Service's not-for-profit healthcare outlook, issued in August. According to the New York-based rating agency, the nation is far from an even playing field, with some markets presenting inherently more risk for providers and other regions posing less susceptibility to downgrades (See chart).
For instance, hospitals in Virginia and North Carolina are benefiting from strong state economies. Virginia enjoys relatively low managed-care penetration, while North Carolina providers are buoyed by rapid population growth, according to Moody's.
One example is 338-bed NorthEast Medical Center in Concord, N.C., which received an A1 rating from Moody's and a similarly strong A+ rating from Standard & Poor's earlier this month for its upcoming $33.2 million bond issue, scheduled for early October. The hospital's relatively high rating was attributed primarily to its role as the dominant provider in fast-growing Cabarrus County.
Maryland's nonurban providers also have an advantage, according to Moody's, because they've avoided the pain of the Balanced Budget Act of 1997 thanks to the state's Medicare waiver under its all-payer system. Under that system, the state's hospitals received a 2.5% average rate increase July 1, which followed a 1% decrease the previous year. Still, Moody's notes that Baltimore-area providers are under more pressure from market competition.
Nancy Fiedler, spokeswoman for the Maryland Hospital Association, says the prospective reimbursement system is generally considered to be a plus for the state's hospitals.
"I don't think there are significantly more dollars in the system. The major difference is the predictability, which I think the bond-rating agencies like," she says.
Moody's also views Florida as a generally stable market because of growth in both the Medicare and under-age-65 populations.
On the other end of the spectrum, California continues to grapple with "extreme" labor issues, low HMO premiums and large independent physician groups that have passed capitation risk to other providers.
More financial pressure for California providers is bound to come from recently passed legislation that mandates staffing levels; Moody's says the law is a setback for California providers that have worked hard to adjust staffing according to the severity of patient illness.
California providers are also hampered by seismic compliance requirements being phased in during the next 30 years that will require them to take on debt.
New Jersey and Pennsylvania, on the other hand, are plagued by excess capacity and growing managed-care penetration, while Massachusetts and Rhode Island face reimbursement pressure because of a limited number of powerful managed-care players, Moody's says.
Meanwhile, Michigan and Tennessee providers are suffering from poorly funded Medicaid managed-care programs, Moody's says.