Aug 12 Small and stand-alone nonprofit hospitals
are facing mounting pressure from weak operating margins and
lower patient volumes, with more signals of stress on the way,
according a report released Wednesday from Standard & Poor's
The rating agency warned the healthcare sector was at "a
tipping point where negative forces have started to outweigh
many providers' ability to implement sufficient
countermeasures." Beginning in 2013 and continuing into this
year, credit downgrades outpaced upgrades at an accelerating
In particular, stand-alone providers are under greater
pressure from physician departures, rising bad debt, and higher
employee benefit costs.
"Hospitals have done a pretty good job cutting costs to deal
with declining revenues," said Martin Arrick, managing director
at S&P. "But in the last year with the additional pressure of
volume declines, it's been the straw that is breaking the
To shoulder the challenges, smaller providers have
increasingly sought out mergers with larger health systems in
order to "seek scale and efficiencies to offset increasing
operating pressures," S&P reported.
Larger health care organizations can better leverage their
scale with vendors and insurers, eliminate duplicate services,
absorb major IT project costs, as well as attract top management
Stand-alone hospitals are generally more vulnerable to
competition in their local markets, regional economic swings and
demographic shifts. These hospitals are also more likely to be
entirely dependent on a small group of doctors, who can suddenly
leave or retire.
For these reasons, Arrick said, stand-alone hospitals have
to offer a stronger profile to receive the same rating as a
larger hospital system.
The uptick in consolidations within the industry has skewed
credit ratings more positively as weaker-rated small providers
joined with stronger-rated larger providers. Typically, the
merged entity assumes the better credit profile, Arrick said.
Prior to consolidation, the smaller hospital often suffered
from a declining financial profile. "If these rating changes are
filtered out of the analysis, the ratio of downgrades to
upgrades is even wider," the report noted.
(Editing by Ken Wills)