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Center for Studying Health System Change . Wall Street Comes to Washington June 18, 2003 Washington, DC Bruce Gordon Senior Vice President Moody’s Investors Service. Moody’s Healthcare Rating Distribution Is Skewed Toward Lower Ratings Than Public Finance Ratings Overall.

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Center for studying health system change

Center for Studying Health System Change

Wall Street Comes to Washington

June 18, 2003

Washington, DC

Bruce Gordon

Senior Vice President

Moody’s Investors Service


Moody’s Healthcare Rating Distribution Is Skewed Toward Lower Ratings Than Public Finance Ratings Overall

All Public Finance Ratings

Health Care Ratings

  • Excludes Credit Enhanced Ratings


Moody s not for profit healthcare outlook
Moody’s Not-For-Profit Lower Ratings Than Public Finance Ratings OverallHealthcare Outlook

“We believe not-for-profit hospitals will maintain overall stable credit quality over the course of 2003 . . . However, we also expect the industry to face strong pressure in 2004 and beyond . . .”

January 2003


Factors Supporting Moody’s Stable Outlook Lower Ratings Than Public Finance Ratings Overall

  • Hospital utilization will continue to grow.

  • Commercial rate reimbursement holding firm.

  • Medicare reimbursement reasonable by historical standards.

  • Hospitals adding new clinical services.

  • Decline in M&A activity enhancing ratings.


Industry developments that continue to pose credit risks
Industry Developments That Continue to Lower Ratings Than Public Finance Ratings OverallPose Credit Risks

  • Federal budget deficits could pressure Medicare

  • State budget deficits already impacting Medicaid

  • Commercial rate increases probably peaking

  • Increase in operating expenses

  • Large capital needs remain

  • Stock market unpredictable

  • Future bio-terrorism activity would increase expenditures

  • Physicians and niche providers skimming cream


Moody s nfp hospital rating changes
Moody’s NFP Hospital Rating Changes Lower Ratings Than Public Finance Ratings Overall


Ratio of downgrades to upgrades six months 2002 and 2003
Ratio of Downgrades to Upgrades: Lower Ratings Than Public Finance Ratings OverallSix Months 2002 and 2003

*through 6/10/03


Reasons for downgrades
Reasons for Downgrades Lower Ratings Than Public Finance Ratings Overall

Strategic:

  • Mergers and acquisitions

  • Non-core operations

  • Construction-related dislocation

  • Capitation

  • Management/physician turnover

  • Merger dissolution


Reasons for downgrades1
Reasons for Downgrades Lower Ratings Than Public Finance Ratings Overall

Local Market:

  • Large Medicaid and indigent mix

  • Nursing and other staff shortages

  • Unfavorable demographics

  • High governmental payer mix

  • Competition

  • High managed care payer mix

  • Union actions


Reasons for downgrades2
Reasons for Downgrades Lower Ratings Than Public Finance Ratings Overall

Financial:

  • Malpractice expense

  • Pension expense/funding

  • Stock market losses

  • Incremental debt

  • A/R, contractual, collection problems


Reasons for upgrades
Reasons for Upgrades Lower Ratings Than Public Finance Ratings Overall

  • Improved reimbursement contracting (S) (F)

  • Patient volume increases (S) (L)

  • Increased market share (S) (L)

  • Divestiture of unprofitable ops (S)

  • Digestion of mergers (S)


Reasons for upgrades1
Reasons for Upgrades Lower Ratings Than Public Finance Ratings Overall

  • Good demographics/pop. growth (L)

  • Exclusive services/specialty provider (S)

  • Sole community provider (L)

  • Cost cutting initiatives (S)

  • Acquisition by higher-rated entity (S)


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