Date post: | 29-Dec-2015 |
Category: |
Documents |
Upload: | dina-kelley |
View: | 217 times |
Download: | 0 times |
Moody’s Not-For-Profit Healthcare Outlook
Brad Spielman, Vice President
Healthcare Ratings Group
San Francisco, CA
(415) 713-3223
Brad Spielman, Vice President
Healthcare Ratings Group
San Francisco, CA
(415) 713-3223
We rate ~530 not-for-profit hospitals and healthcare
systems (~1,200 total hospitals)
– Approximately $113 billion of total rated debt
outstanding
– Stand-alone hospitals (as small as 2,000 admissions)
– Multi-state systems (with more than 400,000
admissions)
– Specialty hospitals
Not-for-profit healthcare median rating is A3
Moody’s Healthcare Portfolio
3
Moody’s Industry Outlook: 2008 - 2009
In September 2008, Moody’s reaffirmed the stable outlook on the U.S. Not-for-Profit Healthcare Industry:
Most hospitals and health systems continue to show resiliency in financial performance; Medicare rates for FY 2009 appear relatively favorable
However, substantially weaker economy in 2008 has created more challenging operating
environment
4
Weaker Economy Has Created Challenges
Higher charity care levels Employers discontinue coverage; more working poor
Increased bad debt expense Co-pay and higher deductible products
Softening inpatient volumes Patients self-regulate healthcare needs, postponing elective procedures
Fundraising may sufferRecent consumer and corporate wealth declines
Potential reductions in Medicaid funding Several state economies have weakened over the past year
Decline in unrestricted cash Market turmoil has lead to large losses
5
Hospitals are Reacting Quickly to Challenges
Productivity benchmarking regarding FTEs
Length of stay reductions
More aggressive upfront registration
Outsourcing of certain functions
Greater investment in IT; more rapid installation
6
Medicare Rates for FFY 2009 Relatively Favorable
3.6% increase for inpatient rates; 3.0% for outpatient
42 compliance measures for quality; down from 72 that were proposed, easing the burden
Non payment for “never-events” begins Oct 1st
Uncertainties surrounding “bundled payment” concept; testing begins in 2009 in four states
7
FY 2007 Medians: Down from FY 2006, Still Favorable to Years Following Balanced Budget Act of 1997
Ratio 2006 2007 1999
Operating Margin 2.3% 2.1% 0.51%
Operating Cash
Flow Margin
9.2% 9.0% 9.0%
MADS Coverage 3.9x 3.9x 3.04x
Days Cash on Hand 154.3 156.6 146.5
Cash-to-Debt 109.0% 110.9% 90.6%
Debt-to-Cash flow 3.6x 3.7x 4.07x
Debt-to-Cap. 38.9% 38.6% 37.8%
8
How Is the Industry Doing?
Number & Percentage of Hospitals with Operating Profit
284
315311333329
77%81% 76%
69%
80%
0
100
200
300
400
2003 2004 2005 2006 2007
Num
ber
0%
25%
50%
75%
100%
Percentage
Compares favorably to 2000 when 57% of hospitals reported an operating profit
Compares favorably to 2000 when 57% of hospitals reported an operating profit
9
How Is the Industry Doing? Another Look
Percentage of Hospitals with Operating Improvement over the Prior Year Profit
64%
60%
44%
47%
40%
50%
60%
70%
2004 2005 2006 2007
10
Looking Forward- Expect continued moderating in financial performance in FY 2008
- Competition for patients will continue; leading to softer patient volumes,
particularly ambulatory setting
- Medicare:
- Recovery Audit Contractor (RAC) initiative will increase pressure on
revenues
- Uncertainty regarding CMS “bundled payment” concept may pressure
performance
- Rates for FFY 2009 appear relatively favorable
- Cost reduction efforts will be key going forward
- Increased capital appetite as the population ages
11
Financing Trends
- High volume of issuance driven by replacement of Auction Rate
Products, and Insured Variable Rate Demand Bonds
- Uninsured Fixed Rate Bonds; issuers looking for greater
flexibility to issue bonds backed by only their own credit
- Variable Rate Demand Bonds backed by Letters of Credit or
Self Liquidity, driven in part by pre-existing swap portfolios
- Increased rating activity
- Market volatility require issuers to be nimble, flexible
12
Appendix IRecent Rating Trends
13
Rating Activity Remains Favorable; Nearly Equal Downgrades to Upgrades
through June 2008
0
10
20
30
40
50
60
2001 2002 2003 2004 2005 2006 2007 Jun-08
Upgrades Downgrades
14
Nearly Two Decades of Industry Shifts and Ratings Changes
Relative stability (pre-BBA)
Volatility post-BBA
Stabilization
Negative
Stabilization returns
Medicare PPS, TRA
15
Not-for-Profit Healthcare Ratings: More Spec Grade Than Other Muni Credits
0%
4%
8%
12%
16%About 10% (or 50) of Moody’s
ratings are below
Investment Grade
(544 Ratings; Excludes Credit Enhanced Ratings)
Unrated market of small healthcare
organizations: nearly all spec
grade
16
Not-for-Profit Hospital Ratings Distribution
0%
20%
40%
60%
80%
100%
Aaa Aa A Baa <Baa
PositiveStable
Negative
RUR-Down
Ratings Distribution (531 credits) Outlook
Distribution