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Global Credit Research -
25 Jan 2012
New York, January 25, 2012 -- Driven by increased revenue pressures and challenges resulting from the
transition to a new healthcare delivery model as a result of national
healthcare reform, the outlook for the U.S. not-for-profit
healthcare sector remains negative for 2012, says Moody's
Investors Service in a new report.
"The outlook has been negative since 2008 because various economic
and regulatory risks remain elevated compared to the pre-2008 period,"
said Moody's Vice President -- Senior Analyst Brad Spielman,
author of the report. "While performance within the sector
is expected to remain variable in 2012, the preponderance of credit
factors is negative, and is expected to remain negative for the
next several years."
In addition to the modest projections for hospital revenue growth over
the next 18 months, Moody's negative outlook for 2012 is based
on the expectation of ongoing national economic softness, financial
and operating pressures resulting from regulatory changes, and continued
balance sheet challenges. The sluggish economy is the driver of
weaker financial results manifested in softer volumes, weaker payer
mix, and stressed operating results.
"Ongoing uncertainty about changing regulatory requirements,
healthcare reform and severe federal budgetary stress is putting pressure
on hospital management teams as they prepare for the coming era of lower
reimbursements and different payment schemes under new business models,"
said Spielman. "The pressure is being applied by all sources
of hospital revenue, including Medicare, Medicaid, and
commercial payers."
The Moody's report also identifies continuing balance sheet pressures
due to one or more risks, including: investment value losses
caused by continuing volatility in the equity and bond markets; pension
funding obligations; increased exposure to non-cancelable
operating leases; negative valuation of swap portfolios; and
increased capital spending funded with cash reserves.
"Positive factors for the sector include a trend towards mergers
and acquisitions that, on balance, is a long-term positive
for the industry and provides an exit strategy for bondholders,"
said Spielman. "Overall stable financial performance and
ongoing expense reductions point to improving management and governance
in the sector."
Not-for-profit hospitals and health systems are also benefitting
from historically low interest rates and reduced expense growth,
and growth in state-administered provider fee programs, creating
short-term relief from Medicaid reimbursement pressures.
The report, "U.S. Not-For-Profit
Healthcare Outlook Remains Negative for 2012," outlines Moody's
expectations for the fundamental credit conditions in the industry over
the next 12 to 18 months but is not a prediction of the expected balance
of rating changes during that timeframe. It is available at moodys.com.
* * * *
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Bradley E. Spielman
Vice President - Senior Analyst
Public Finance Group
Moody's FIS Domestic Sales Office - San Francisco CA
One Sansome St. Suite 3100
San Francisco, CA 94104
U.S.A.
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MD - Public Finance
Public Finance Group
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Moody's: U.S. not-for-profit healthcare outlook remains negative for 2012
No Related Data.
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