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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.

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Center for Studying Health System Change

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  1. 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

  2. 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

  3. Moody’s Not-For-Profit Healthcare 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

  4. Factors Supporting Moody’s Stable Outlook • 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.

  5. Industry Developments That Continue to Pose 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

  6. Moody’s NFP Hospital Rating Changes

  7. Ratio of Downgrades to Upgrades: Six Months 2002 and 2003 *through 6/10/03

  8. Reasons for Downgrades Strategic: • Mergers and acquisitions • Non-core operations • Construction-related dislocation • Capitation • Management/physician turnover • Merger dissolution

  9. Reasons for Downgrades 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

  10. Reasons for Downgrades Financial: • Malpractice expense • Pension expense/funding • Stock market losses • Incremental debt • A/R, contractual, collection problems

  11. Reasons for Upgrades • Improved reimbursement contracting (S) (F) • Patient volume increases (S) (L) • Increased market share (S) (L) • Divestiture of unprofitable ops (S) • Digestion of mergers (S)

  12. Reasons for Upgrades • 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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