Moody’s FY08 not-for-profit hospital medians show a weakening of credit measures across all major ratios, including operating performance and balance sheet measures, and all broad rating categories. Operating performance declined for the third consecutive year. According to the August 2009 report, Not-for-Profit Hospital Medians for Fiscal Year 2008, the rate of operating decline is among the highest in recent history. Moody’s expects that operating measures will continue to come under pressure in 2009.
Moody’s notes that previous economic downturns have at times bypassed stronger organizations but the current situation is having a material effect on credits across the rating spectrum. For example, the median operating cash flow margin for Aa-rated credits declined to 9.8 percent in FY08 from 10.5 percent in FY07, A-rated credits declined to 9.1 percent from 9.7 percent and Baa-rated credits declined to 7.5 percent from 7.8 percent.
Rating pressure has continued to be significant through the first two quarters of 2009. Pressure has been most significant among the more highly rated credits, suggesting that “size may be a porous barrier to the ill effects of the economy.”
Moody’s currently views healthcare reform as mixed to largely negative for the sector. It is unlikely that the sector outlook will be changed to stable before potential reform-related changes are understood, the rating agency says.
