New reports show healthcare credit quality continued to erode during this year's first quarter as fresh fiscal worries of a weaker stock market and a nursing shortage began to take a toll.
Ratings agency Standard & Poor's downgraded 20 credits and upgraded four, while Fitch lowered six credits and upgraded none. All but one of each agency's downgrades involved hospitals or healthcare systems.
Both firms released their first-quarter ratings reports last week. They are consistent with a report by Moody's Investors Service that said credit erosion continued in the quarter, though at a slower pace.
S&P said downgrades have continued as a result of rising labor costs, hospitals' inability to manage accounts receivables, rising energy costs in some markets and weakness in the stock market. However, the ratings agency still expects the ratio of downgrades to upgrades to moderate by year's end.
Its report echoes Moody's earlier finding that weaker hospitals continued to struggle in the quarter. Nine S&P ratings dropped to junk status, some after years of stable performance, the agency said. Extreme examples were Crouse Hospital, Syracuse, N.Y., which had its rating lowered to CCC after filing for Chapter 11 bankruptcy, and Hallmark Health System, Malden, Mass., which was lowered to BB- because of continued losses and declining cash on hand.
"A key characteristic of many of these downgrades was how quickly and severely the credit profile of these hospitals deteriorated," S&P said.
S&P also noted significant liquidity declines, cited in at least 10 of its downgrades; in previous years, cash balances had risen because of high investment returns. Also, the ratings agency said some hospitals' balance sheets were stressed by the need to add new services and fund capital improvements to meet growing demand.
On the positive side, some large systems showed improvements. S&P upgraded $660 million in debt in the quarter, compared with $166 million upgraded in the first quarter of 2000. The largest upgrades were New York City Health and Hospitals Corp., which benefited from an upgrade of its sponsor, New York City, and PorterCare Adventist Health System, Denver, which received its third boost in a year, to BBB+, because of improved operations.
Fitch said industrywide pressures, such as rising personnel costs and losses on physician practices, lay behind its downgrades.