Ratings agencies maintain negative outlook for health care

Recent reports from the three major credit ratings agencies maintained negative outlooks for the healthcare sector overall.

Fitch's outlook for the not-for-profit acute care sector has been negative since December 2008, due in large part to the recession and the uncertainties surrounding health reform. However, in a statement issued on Aug. 3, Fitch said it does not expect reform to lead to broad, multinotch downgrades of hospitals and health systems, and that positive elements of reform, such as fewer uninsured patients, could mitigate negative pressures. Fitch maintains a negative outlook for the sector, anticipating that downgrades will exceed upgrades for the next 12 to 24 months but that affirmations will remain the most common rating action.

In its Moody's Not-for-Profit Healthcare 2009 Quarterly Ratings Monitor, Moody's Investors Service reported that affirmations represented the largest percentage of all rating actions in the second quarter of 2009. During that period, Moody's affirmed 86 ratings in the sector, on par with affirmations in the second quarter of 2008. However, downgrades far outpaced upgrades for the third consecutive quarter, whereas downgrades equaled upgrades in the second quarter of 2008.

In a July 7 report, Standard & Poor's said key median ratios for the 134 health systems rated by the credit ratings agency worsened across all categories in FY08. Overall, the median operating margin was 2.4 percent in 2008, compared with 2.8 percent in 2007. The median net margin dropped to 2.5 percent, down from 6.3 percent in 2007. The number of health system rating downgrades doubled to 18, and the outlook for 27 systems declined, up from 14 in 2007.

These results are partially attributable to the economic slowdown; however, the recession also exacerbated declines brought about by core operating challenges, Standard & Poor's says.