Fiscal 2008 key median ratios for the 134 health systems rated by Standard & Poor’s worsened across all rating categories, according to a new report issued by the credit ratings agency. Overall, the median operating margin was 2.4% in 2008, as compared with 2.8% the previous year. The median net margin dropped to 2.5%, down from 6.3% in 2007. The median number of days systems could operate on cash reserves fell to 154 days in 2008 from 181 days the prior year.
The number of health system rating downgrades doubled to 18 and Standard & Poor’s lowered the outlook for 27 systems, up from 14 in 2007.
This is the third consecutive year of declining operating margins and a decline in upgrades for the sector, says the credit rating agency. Additionally, 2008 represented a 10-year peak in downgrade volume on an absolute basis.
These results are partially attributable to the economic slowdown; however, the recession also exacerbated declines brought about by core operating challenges, Standard & Poor’s says. Results presented in the report, U.S. Not-for-Profit Health Care Stand-Alone Fiscal 2008 Median Ratios Weaken Across the Board, support the conclusions in Standard & Poor’s August 2008 report that declining operating margins would no longer be offset by strong nonoperating revenues.
