Multiple factors are pressuring Puerto Rico's nonprofit universities and hospitals, Standard & Poor's said in two reports Tuesday.
Credit analysts Charlene Butterfield and Bianca Gaytan-Burrell said that the agency had downgraded two Puerto Rico universities this summer but the full impact of negative factors on universities' credit quality remained unclear.
In June S&P downgraded the University of Puerto Rico to CCC-minus from CCC-plus. The downgrade was triggered by S&P's downgrade of the Puerto Rico government, because the university depends on government revenues for 68% of its revenues.
Private universities in the commonwealth are also under pressure; in August the ratings agency dropped the University of Sacred Heart to BBB-minus from BBB, saying the island's economic weakness may diminish future enrollment.
S&P is concerned that the commonwealth's continuing recession may impact island universities' credit, Butterfield and Gaytan-Burrell said. The number of students graduating from Puerto Rico high schools has been declining in recent years, pressuring university enrollment.
Besides rating the two already mentioned schools, S&P also rates Sistema Universitario Ana Mendez BBB-minus, Polytechnic University of Puerto Rico BBB-minus, and Inter American University of Puerto Rico A-minus.
"We will continue to monitor the aforementioned risks during the next year and will evaluate the effect on credit quality on a case-by-case basis in light of each institution's particular credit profile," S&P's news release said.
In a separate release Butterfield and S&P analyst Martin Arrick addressed risks to the three hospitals the agency rate in Puerto Rico: Auxilio Mutuo, Iglesia Episcopal, and Ryder Memorial Hospital.
Risks include an expected federal cut of 11% of disbursement payments to Medicare Advantage plans in early 2016. Most Puerto Rico Medicare patients are covered by these plans.
The analysts also warned that a federal grant that funds Puerto Rico's Medicaid program may run out early. This would force the commonwealth government to reduce the number of people in the program, leading to a greater number of uninsured poor patients being seen by the hospitals, they said.
The island's weak economy has also led to the departure of medical professionals to the mainland, forcing hospitals to have to pay those that remain higher salaries.
"The combined result of the aforementioned risks could mean that, over time, hospital providers in Puerto Rico could face lower reimbursement revenue from governmental and commercial payors, higher levels of bad debts, and an increased burden of uninsured patients," the analysts wrote. "Lower utilization could result from decreased patient access if patient benefits are reduced and fewer doctors are practicing."
S&P rates Auxilio Mutuo A-minus, Ryder Memorial BB-minus, and Iglesia Episcopal CCC.
"We will evaluate the effect of any changes to reimbursement revenue, utilization, or medical staff on a case-by-case basis over the next few months, as any negative financial consequences will depend on providers' existing payor mix and medical staff makeup, as well as the federal response to the local economy," the analysts said.
