The U.S. not-for-profit healthcare sector performed well in the first half of 2006, according to a Standard & Poors Ratings Services report on rated hospitals and health systems. S&P reported that ratings upgrades outpaced lowered ratings by a small margin through June 30. The real story, says S&P, is the sector’s stability--of 265 rating actions in the first half of the year, 83% were rating affirmations. The favorable credit environment should continue through 2007, possibly 2008, despite some negative trends, according to S&P. Bad debt, charity care, and capital spending are important concerns, but S&P says well-managed organizations should be able to overcome these potentially harmful factors.
The 2006 median healthcare ratios for not-for-profit health systems and stand-alone hospitals also demonstrated improvement. Gains were attributed to stronger income and cashflow measures, growth in liquidity, and improvement in balance sheet measure across most rating categories. According to S&P’s U.S. Not-for-Profit Health Care 2006 Stand-Alone Hospital Medians, stand-alone not-for-profit hospitals that it rated had an overall profit margin of 5%, up from 4.1% in 2005; operating margin of 3%, up from 2.4% in 2005; and an operating cashflow margin of 10%, up from 9.6% a year earlier. In another report, U.S. Not-for-Profit 2006 Health Care System Medians, not-for-profit health systems (three or more hospitals with some risk dispersion) that S&P rated showed similar gains. Overall, from 2005 to 2006, profit margin increased from 4.3% to 5.2%; operating margin grew from 2.5% to 3.2%; and operating cashflow margin rose from 9.2% to 9.7%. A key factor in determining future credit quality will be changes in government reimbursement. For more information, call 212-438-6667.
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