From the investor-owned perspective, Standard & Poor's sees calm waters in 2006 for the broad healthcare market, so it can better focus on actions taken by hospital companies and others in the sector that would roil the market.
The New York-based credit-rating agency said it expects credit quality across healthcare this year to depend more on the actions of individual companies, such as acquisitions and financial maneuvers to unlock shareholder value, than on industry trends. For example, hospitals don't face significant reimbursement worries for 2006, S&P analyst Michael Kaplan said in an interview.
Even if patient volumes remain flat, those can be mitigated with good cost control, Kaplan said. Rising bad-debt expense and higher costs for acquiring hospitals are concerns, but they are minor factors overall, he said. Also, many hospital companies are taking advantage of a greater willingness among lenders to lend to organizations with lower-quality credit, Kaplan said.
There is potential for trouble beyond 2006 in the form of high-cost medical devices used in high-margin services lines such as cardiovascular and orthopedic surgeries, Kaplan said, pointing to Boston Scientific Corp.'s $25 billion offer for Guidant Corp., which also has a lesser offer on the table from Johnson & Johnson. "There's a $25 billion acquisition bid for Guidant. That price is a signal that medical-device makers see significant potential in investing in this area," Kaplan said. "For that to happen, they will have to garner substantial prices for the products that are introduced."