The worsening economy has put financial performance at risk for hospitals and nearly every other healthcare sector, one major ratings agency said last week.
Hospitals, insurers and medical-device makers face falling revenue and eroding profits as the downturn squeezes employer, household and public budgets, analysts with Moodys Investors Service said in four reports that lowered the industrys once-stable outlook to negative.
Behind Moodys action are the dysfunctional financial markets and broader economic woes at the heart of rising U.S. unemployment and plummeting stock markets. A recession wont halt illness or injury, but it does erode patients ability to pay as businesses fail and jobs with health benefits disappear. One estimate, by the Kaiser Family Foundation, adds 1.1 million to the ranks of uninsured for every 1% increase in national unemployment. Demand for free care or bad debt from patients who dont pay medical bills are expected to increase as the economy falters, Moodys said.
The speed with which economic troubles mushroomed since September prompted Moodys public finance analysts to lower their outlook to negative for U.S. not-for-profit hospitals two months ahead of a scheduled update on the sectorand just two months after the agency affirmed the stable outlook it issued in January 2008. During the last 10 weeks, disruptions in the credit and liquidity markets have worsened and the prospects of a protracted recession have increased, the outlook said.
Lisa Goldstein, a Moodys senior vice president, said not-for-profit hospitals have reported unexpectedly poor performance and fewer revenue-generating patients, including a decline in elective surgeries. The tax-exempt sector also faces less access to capital as continued disruptions in credit markets make it more difficult and expensive to borrow.
It has been volatile and unpredictable and we dont have a crystal ball to prepare for future disruptions, Goldstein said. But recent months have demonstrated that nearly anything is possible. The hypothetical has become reality, she said.
For-profit hospitals face economic pressure on volume and revenue, as patients delay elective care, private insurance coverage wanes and governments struggle to fund public insurance plans, Moodys said. For-profit hospitals rated by Moodys dont face a strain on liquidity, analysts said, and operators appear able to withstand financial pressure during the next year to 18 months without damage to their credit ratings (Nov. 3, p. 32). Bad debt, already a growing expense, may accelerate as the economic downturn drags on.
David Peknay, a hospital credit analyst for Standard & Poors, said rising unemployment could spur an increase in bad debt as temporary benefits for the unemployed run out, such as the short-term ability to buy into a former employers health plan under the Consolidated Omnibus Budget Reconciliation Act. Peknay said credit ratings for for-profit hospitals rated by Standard & Poors dropped prior to the economic downturn, in some cases thanks to the heavy leverage companies took on during better times and operating pressures.
Moodys outlook for medical device companies also was revised to negative from stable. Lower hospital volume and the credit crunch could curb demand for medical products and devices.