Moody’s down on hospi­tal credit

Modern Healthcare - - FRONT PAGE - Me­lanie Evans

The cool­ing econ­omy con­tin­ued to put a drag on not-for-profit hos­pi­tals as spring turned to sum­mer. Be­tween April and June, the sec­tor saw more rat­ing volatil­ity, and Moody’s In­vestors Ser­vice down­graded more debt than it up­graded, ac­cord­ing to a re­port re­leased last week.

That’s the re­verse of the typ­i­cal pat­tern, and it may per­sist amid “the con­tin­ued slow eco­nomic re­cov­ery, in­creas­ing pres­sure on state bud­gets and a large and grow­ing fed­eral deficit that may lead to re­duc­tions in Medi­care and Med­i­caid which trans­late into weak vol­umes and rev­enue de­clines,” Moody’s said.

Moody’s low­ered the rat­ing on a dozen not­for-profit health­care bor­row­ers with $2.78 bil­lion in debt. Moody’s raised the credit rat­ings on $2.11 bil­lion in debt held by nine hos­pi­tals and health sys­tems dur­ing the same three months.

More of­ten, the value of up­graded debt sur­passes down­graded debt, Moody’s said. That’s be­cause larger health sys­tems, which have the ad­van­tage of economies of scale and also more out­stand­ing debt, are more likely to re­ceive credit up­grades than in­de­pen­dent hos­pi­tals with less debt, said Beth Wexler, se­nior credit of­fi­cer with Moody’s.

“This re­verses that trend, but it is not an out­lier,” Carrie Sh­effield, an as­so­ciate an­a­lyst with Moody’s and lead au­thor of the re­port, said of the sec­ond quar­ter’s re­sults.

Three large health­care bor­row­ers ac­counted for more than half, $1.7 bil­lion, of the down­graded debt dur­ing the sec­ond quar­ter, Sh­effield noted: Fairview Health Ser­vices, Min­neapo­lis; Ket­ter­ing Health Net­work, Day­ton, Ohio; and Tem­ple Univer­sity Health Sys­tem, Philadel­phia. Fairview’s debt rat­ing dropped to A3 from A2 af­ter a fi­nan­cial down­turn, the an­nounced de­par­ture of the seven-hospi­tal sys­tem’s chief ex­ec­u­tive and “rep­u­ta­tional risks” af­ter Min­nesota’s at­tor­ney gen­eral re­leased re­sults of an in­quiry into its billing and col­lec­tion con­trac­tor, Ac­cre­tive Health, Moody’s said.

Ryan Daven­port, a spokesman for Fairview, said in an e-mail that the rat­ing ac­tion was dis­ap­point­ing but “not un­ex­pected given cur­rent events within our or­ga­ni­za­tion and fi­nan­cial chal­lenges we’ve faced over the past cou­ple of years.”

Wexler said the econ­omy con­trib­uted to the weak de­mand at two-hospi­tal Tem­ple Univer­sity Health Sys­tem, which was down­graded to Ba1 from an in­vest­ment grade Baa3.

Robert Lux, vice pres­i­dent and chief fi­nan­cial of­fi­cer for Tem­ple, said the sys­tem has seen fewer pri­vately in­sured pa­tients and more with safety net in­sur­ance since the re­ces­sion. Med­i­caid cov­ers 42% of the sys­tem’s pa­tients. Medi­care cov­ers an­other 39%, and 19% have pri­vate in­sur­ance. More re­cently, “things have sta­bi­lized,” Lux said.

The Moody’s out­look for the not-for-profit sec­tor re­mains neg­a­tive.

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