Of the hospitals that it rates, not-for-profit hospitals have continued to strengthen their financial performance and market positions, giving them an overall credit edge over for-profit competitors, says Moody’s Investors Service in a newly released special report, A Look Inside For-Profit Hospital Companies: Less of a Threat to Not-for-Profit Hospitals Today Than in the Past.
Although for-profit hospital companies were once viewed as highly efficient operators that were rapidly expanding through acquisition of not-for-profit hospitals, the demise of Columbia/HCA, numerous federal investigations, and the Balanced Budget Act of 1997 have cast a pall over the for-profit sector. “Many for-profit companies are experiencing senior management turnover, costly stock repurchases, and increases in bad debt and charity care, which is a new phenomenon for many of them,” states Moody’s senior vice president Lisa Goldstein, who wrote the report.
Today, partly due to the threat from the for-profits, not-for-profit hospitals are stronger competitors as they have improved their operations, sharpened their focus, added new management and finance expertise, and learned to reap better advantage from the economies of scale of multihospital systems. The return to core acute care operations and the shedding of unprofitable ventures also contributed to stronger results.
Moody’s currently maintains ratings on 10 for-profit hospital companies representing about 470 hospitals and on 543 not-for-profit hospitals and health systems representing about 1,200 hospitals. Most of those for-profit hospital companies are rated below investment grade. By contrast, of the not-for-profit hospitals that Moody’s rates, only 10% are rated below investment grade, and most of these represent downgrades from prior investment grade status. For more information about the report, call 212-553-4431.
