(Reuters) - The number of rating downgrades for non-profit hospitals outpaced upgrades in the first quarter of 2012, Moody's Investors Service said on Monday, adding it remains cautious about the effects of a slow economic recovery, federal deficit cutting measures and state budget pressures on the sector.
The ratio of downgrades to upgrades was 1.33 to 1, Moody's said.
"The increased proportion of downgrades is driven by the continued slow economic recovery, increasing pressure on state budgets, and a large and growing federal deficit that may lead to reductions in Medicare and Medicaid which translate into weak volumes and revenue declines," Moody's said in a statement, noting that it is maintaining its long-standing negative outlook on the sector.
Upgrades "have been due primarily to strong management, increased revenues from state provider taxes, and mergers," the rating agency added.
Meanwhile, the dollar amount of downgraded debt, $2.78 billion, exceeded the dollar amount of upgraded debt, $2.11 billion, which resulted in a ratio of 1.32 to 1.
That was a reversal from prior quarters and showed an increase of downgrades of bigger not-for-profit health systems, Moody's said.
The agency affirmed 84 ratings in the quarter, and changed six rating outlooks to positive. But it said "we still believe downgrades will continue to outpace upgrades."
Last month, the U.S. Supreme Court upheld the federal healthcare law known as the Patient Protection and Affordable Care Act, a decision Moody's deemed a "neutral event" for non-profit providers. The law changes how Medicare and Medicaid, two health insurance programs for the elderly and the poor, operate.
"Reductions and changes in Medicare and Medicaid reimbursements and funding will be negative in the long term due to expected cuts to these programs stipulated under the act," Moody's said.
Reporting by Lisa Lambert and Caryn Trokie; Editing by Chizu Nomiyama and James Dalgleish