LOS ANGELES -- The United States not-for-profit healthcare sector outlook is stable for 2013, but conditions are less favorable than in the past three years as providers continue to prepare for healthcare reform, according to a Standard & Poor’s report.
The credit rating agency expects the ratings on most healthcare providers to remain steady based on “the financial cushion many providers have built in the last few years, successful and ongoing cost containment efforts, and the benefits of consolidation.”
However, the federal reimbursement reductions in the fiscal cliff bill recently passed by Congress, the remaining threat of sequestration or Medicare cuts, and increased healthcare reform preparation will challenge the sector this coming year.
“We are encouraged by what we view as management’s responsiveness and resilience, which has resulted in positive credit metrics since 2010 despite many incremental pressures that aggregate to an increasingly difficult operating environment,” analysts said in the report.
In each of the past three years, the amount of upgrades to ratings of not-for-profit acute care hospitals and health systems outpaced the amount of downgrades. In 2012, Standard & Poor’s upgraded 38 hospitals and downgraded 31.
That upgrade-to-downgrade ratio was narrower than in prior years. There were 50 upgrades and 31 downgrades in 2011, and 42 upgrades and 32 downgrades in 2010.
Providers have achieved the positive trends in credit quality in past years through aggressive cost cutting, mergers and acquisitions, restrained capital spending, lower cost of capital, and new sources of revenues.
“Yet, we question the ability of providers to sustain these favorable trends as we believe that we are now at the top of this credit cycle,” analysts said, adding that credit quality and ratings are expected to be negatively affected beginning in 2014, when the individual health insurance mandate begins.
Hospital providers will face a mass of changes, including uncertainty about the number of currently uninsured individuals who will become insured, the adequacy of payment rates for the newly insured, and whether there will be a shift from employer-sponsored commercial insurance to exchange products.
Remaining concerns for the sector include the still-sluggish economy, high levels of uninsured and underinsured patients, smaller rate and reimbursement increases, tougher decisions on cost-cutting, and reduced patient volumes, among others.
