Nonprofit hospitals don’t issue stock, so you can’t track their financial health by the ups and downs of share prices. But many sell聽bonds, and it’s fair to say that hospital bonds haven’t fared as well recently聽as the Dow Jones聽average. Last year set a record for hospital-bond downgrades, as debt levels rose and hospitals faced the uncertainty of business聽under the Affordable Care Act, debt-rater Moody’s .
“We are on the precipice of change,” said Moody’s analyst Lisa Goldstein. “Revenue growth remains a key pressure point.聽Volumes are flat to declining, especially on the inpatient side.”
There has been much discussion and disagreement about whether the deceleration in health-cost increases should聽be or to , which may prompt people to delay seeking care. Whatever the cause, the聽trend raises questions for medical businesses that have gotten used to health spending growing faster than the overall economy year after year.
Moody’s downgraded bonds worth $20 billion last year, the most ever. That’s about 10 percent of the hospital debt聽that Moody’s follows, and far more than the $6.4 billion marked down聽in 2011. The previous record came in 2000, when Moody’s downgraded bonds worth $15 billion.
More than half聽of 2012’s pain came among three large systems, Catholic Health Initiatives,聽Dignity Health and New York鈥檚 Memorial Sloan-Kettering Cancer Center. Hospitals that were downgraded typically added debt,聽undertook large construction projects or bore large pension liabilities, Goldstein said.
But don’t write off hospitals yet. Moody’s upgraded debt worth $9.7 billion last year and maintained ratings on the rest. Moody’s median rating for hospital bonds is A2 , which it describes as “upper-medium grade and low credit risk.”聽Most of the upgrades were associated with聽mergers that gave weaker hospitals links聽with bigger systems and more聽wherewithal to repay loans. Mergers also can give hospitals more bargaining power with insurance companies, often leading to higher prices聽and more revenue.
This year, too, “we do expect more downs than ups,”聽 Goldstein said of the ratings. “But one caveat could be, if the [merger and acquisition] activity continues — and it’s at a pretty good pace — it could preclude downgrades.”
