DALLAS – With the healthcare industry facing dramatic changes, Scottsdale Healthcare Corp. is getting a ratings lift after the sale of eight buildings under a new finance strategy.
Moody’s Investors Service raised the Arizona hospital organization to A2 from A3 and shifted the outlook to stable; it had been positive at the lower rating.
Fitch Ratings raised its rating to A from A-minus and provided a stable outlook.
Standard & Poor’s improved its outlook on SHC’s A-minus rating to positive from stable.
The ratings changes affect $332 million of revenue bonds issued through the Scottsdale Industrial Development Authority.
“The positive outlook reflects our view of SH's continued liquidity growth, with an additional increase related to the divestiture of medical office buildings, and the turnaround in profitability at Thompson Peak, the newest of the system's three campuses,” wrote Standard & Poor’s analyst Geraldine Poon.
Moody’s upgrade “reflects the continuation of solid operating margins, the continued improvement of balance sheet measures, the overall growth of operating cashflow production, and the absence of significant capital spending or debt plans,” wrote Moody’s analyst Brad Spielman.
Scottsdale Healthcare holds the dominant market position in Scottsdale and system expansion has been called successful by ratings agencies. The system still faces a difficult payer market, and competition from hospitals in Phoenix.
Fitch believes that SHC's operating and financial profile is being bolstered by management's ongoing strategic initiatives to transform its healthcare delivery model, according to analyst Michael Borgani.
SHC has partnered with a large physician group and created a joint venture called Scottsdale Health Partners that should enable the organization to operate better under a value-based reimbursement system rather than the vanishing volume-based one, Borgani wrote.
In anticipation of insurance exchanges and other market reforms that could lower commercial rates, SHC is also restructuring cost and revenue models to achieve break-even profitability under Medicare-like reimbursement, Borgani said.
“Management anticipates the cumulative four-year impact of this initiative to total $100 million,” Borgani said.