The number of credit rating downgrades on not-for-profit hospitals is likely to outpace upgrades in 2015, Standard & Poor's forecast in a new report that assigns a negative outlook to the sector.
The rating agency is the third to issue a negative sector outlook for 2015. For the second year in a row, all three of the major credit raters have agreed that not-for-profit hospitals will struggle more than benefit in the coming months.
S&P did see a “glimmer of relief” on the horizon. Hospitals will benefit from a greater number of insured patients; robust investment markets; and increased consolidation that has allowed many providers to achieve economies of scale and increase their referral base, the report said.
However, the agency still expected that hospitals and systems will be operating with slim margins, particularly as their costs increase and reimbursement is squeezed. Providers will continue to grapple with lower inpatient volume and payment reforms that turn the current fee-for-service model on its head. Ratings will depend on how quickly they can adapt to the new environment.
This is the third consecutive year that S&P has placed a negative outlook on not-for-profit providers.
Larger systems will continue to have advantages over smaller ones, and S&P acknowledged the protective benefits of increased merger and acquisition activity. But the particular challenges that providers face cut across the sector.
A number of uncertainties also remain for hospitals as opponents of the Patient Protection and Affordable Care Act mount legal and legislative challenges to the law, S&P notes.
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