NOT-FOR-PROFIT HOSPITALS: Financial Woes Will Continue
Not-for-profit hospitals will likely suffer more bankruptcies and defaults over the next few years as "mismanagement, competition, troubled mergers and declining revenue take their toll," predicts a new Moody's Investors Service report released yesterday. Large, urban hospitals are not immune, the report said, in part because they are already reeling from failed growth strategies and cuts stemming from the Balanced Budget Act of 1997. As it stands, 35 of the 480 not-for-profit health care operations rated by Moody's have debt classified as speculative. Those ratings account for nearly $2 billion in outstanding debt, and increasingly, Moody's said, the facilities are "large, multi-site systems with more than $200 million in revenue." The report predicts, "We believe this trend of ratings falling into the speculative grade will continue and include all sizes of health providers" (Appleby, USA Today, 7/15). Ratings in the junk category are picking up speed, underscored by Allegheny Health and Education Research Foundation's recent tumble, the Reuters/Philadelphia Daily News reports (7/15).
"We're finding that the financial situation and severity of the problems are being experienced across the board, not just in one kind of hospital or one part of the country," said the American Hospital Association's Rick Pollack. Some blame the financial pinch on the oversupply of hospital beds. Peter Young of Healthcare Strategic Issues said that soon, patients may receive routine care close to home but travel to regional centers for "big-ticket care," such as heart surgery. "This is the beginning of a wringing-out process," he said, "Ultimately, not every community may have a hospital like it has today" (USA Today, 7/15).
Down the Line ...
Knocked back by reduced Medicare reimbursements, many hospitals are shying away from loans and seeking out donors and endowment funds for improvement projects, said Dr. Manual Lowenhaupt of Deloitte Consulting. But those hospitals that are issuing bonds have had to offer higher interest rates to lure investors wary of low bond ratings, said Robert Ciolek, executive director of the Massachusetts Health and Education Finance Authority, a state agency that helps not-for-profits arrange financing. "The industry is petrified. The good news is that most of the hospitals are not planning any significant bond issuances. The bad news is that they need to" (Heldt Powell, Boston Herald, 7/15). Last year, the state agency had "13 health care issues ... but only three so far this year, with none in the pipeline."
Boston Hospitals Reeling
Noting that Boston's teaching hospitals are particularly hard hit, Ciolek predicts that if the downslide continues, "hospitals may wait too long for equipment upgrades and risk Boston's reputation." Partners HealthCare System, which includes Massachusetts General and Brigham & Women's hospitals, managed to hang on to its double-A-minus rating from Standard & Poor's Corp. this year. However, Partners' received a negative outlook on its debt in March, a warning from S&P that it could see its ratings slide. CareGroup HealthCare System, which operates Beth Israel Deaconess Medical Center, saw its rating topple from an A to a triple-B-plus and Harvard Pilgrim Health Care saw its rating plummet from A-minus to double-B, in the junk category (Gentry, Wall Street Journal/New England Edition, 7/14).