Occasional bond payment defaults by not-for-profit hospitals are likely to continue in the coming decade, according to a special comment by Moody’s Investors Service. The agency reviewed sector performance of its rated institutions over the past 37 years and reports that, since 1970, the not-for-profit healthcare industry has had 17 Moody’s-rated defaults; 10 of those occurred between 1970 and 2000, while seven occurred in the past seven years, indicating modest acceleration in not-for-profit healthcare defaults.
According to Moody’s, defaults are largely due to structural weaknesses that correspond to six factors:
* Excessive board/management emphasis on mission over margin, manifested typically in recurring operating losses and high reliance on investment income
* Board failure to check management’s unfettered capital spending
* Weak market share or failure to establish a clear niche in competitive markets
* Inability to recruit physicians and attract volumes to replacement hospitals or new hospitals
* Failure to plan for and react to weak local area economic conditions
* Inflexible responses to cuts in Medicare, Medicaid, or disproportionate share funds
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