An escalation in rating downgrades of not-for-profit hospitals in the fourth quarter points to the negative effects on the sector of a rapidly weakening economy, restricted access to capital, investment losses, and the growing risks associated with variable rate debt, says Moody's Investors Service in a new report.
Moody's downgraded 18 hospital bond ratings in October and November while upgrading only one. This represents a sharp increase in downgrades for the first nine weeks of a quarter and a notable departure from the nearly equal ratios of upgrades to downgrades in recent quarters. The primary factors for the downgrades cited by Moody's include the softening of revenue caused by patients deferring elective procedures, intensifying competition for insured patients with other hospitals and physician groups, and weaker financial performance as rising unemployment is causing increased charity care and bad debt expense.
Moody’s Senior Vice President Lisa Goldstein notes that many hospital management teams have responded quickly to the economic challenges that are impairing financial performance, taking such steps as making greater use of board members' financial and investment expertise, delays of non-essential capital spending, and reevaluation of the financial benefits of new large-scale capital projects. "Other steps include better upfront payments collection, staff reductions, review of all vendor contracts, and outsourcing of some services," said Goldstein. "However, some hospitals with union contracts set to expire in the next 12 months are finding staff reductions to be a more delicate matter."
For more information on the report, read the Moody’s announcement (registration required).
