During the first quarter of 2013 Moody's Investors Service downgraded six ratings in the not-for-profit healthcare sector and upgraded three ratings, detailed in the report "U.S. Not-For-Profit Healthcare Quarterly Ratings: Small Hospitals Dominate Downgrades in First Quarter 2013." Five of the six downgraded ratings were on smaller hospitals with less than $500 million in revenues.
"Almost all rating downgrades were small-sized providers, continuing a trend we have seen for several years. Small hospitals are unable to absorb the reimbursement pressures facing the industry," says Lisa Goldstein, Associate Managing Director. "Two of the three upgraded providers have over $500 million in revenues and all demonstrated multiple years of improved financial performance reflecting growing volume trends and dominant local market positions."
Moody's views the smaller healthcare providers as burdened with several disadvantages relative to their larger peers, including limited leverage during negotiations with commercial payers and vendors, lack of economies of scale, and over-reliance on a few key physicians.
Looking ahead, Moody's expects more downgrades than upgrades in the second quarter, given that there are already three hospitals currently under review for downgrade.
During the first quarter Moody's downgraded $988 million in not-for-profit healthcare debt and upgraded $658.1 million, for a ratio of 1.5 to 1. The ratio for downgraded issuers versus upgraded issuers during the quarter was 2 to 1 ratio -- the same ratio as in the fourth quarter of 2012, when there were 10 downgrades and five upgrades.
The nine rating changes in the first quarter of 2013 was a decline from the 22 rating changes during the first quarter of 2012, when there was an even split between downgrades and upgrades.
During the first quarter of 2013, Moody's also affirmed 55 ratings, representing 86% of all rating activity and affecting approximately $25.3 billion in debt.
