The number of rating downgrades declined notably for the first time in the third quarter of 2009 following three consecutive quarters of unprecedented heavy rating downgrade activity, according to an analysis released by Moody’s Investors Service. The ratio of downgrades to upgrades (1.5 to 1) was also more balanced in Q3, a sharp change from the 19 to five (3.8 to 1 margin) and 17 to four (4.3 to 1 margin) ratios in the first and second quarters of 2009, respectively. However, year-to-date activity reported in Moody’s Not-For-Profit Healthcare Quarterly Review: Third Quarter 2009 still shows downgrades far outpacing upgrades with 45 rating downgrades and 15 upgrades (3.0 to 1 margin).
Citing adverse impacts of anticipated cuts in Medicare and Medicaid reimbursement, Moody’s is maintaining its negative outlook on the not-for-profit healthcare industry until federal healthcare reform is finalized, despite the apparent easing of downgrade pressure. Other potential reform-related changes would have “uncertain outcomes for the industry, but there would be winners and losers,” the rating agency said. Moody’s will continue to monitor the progress of these changes, including a tax on more costly health insurance plans, bundled payments, the advent of a public option or not-for-profit health cooperative, and quality/payment links. Moody’s also stated that any effort to significantly reduce the uninsured population would decrease hospital bad debt and charity care, thereby bolstering profits.
