Moody’s Downgrades Nonprofit Hospital Debt by Record $20B in 2012

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February 12, 2013; Source: Becker’s Hospital Review

Moody’s Investors Service recently announced that it downgraded a record $20 billion in nonprofit hospital debt in 2012. These downgrades reflect a “negative outlook” from Moody’s on nonprofit hospitals for the past five years. Hospitals often issue bonds to finance capital expansion, such as new buildings. A downgrade generally makes these bonds more expensive for hospitals to sell, as investors believe them to be a riskier investment than other bond alternatives with higher ratings.

Moody’s cites several factors nonprofit healthcare professionals understand well: uncertainties over Medicare and Medicaid reimbursement rates, the expansion of covered populations, slowing of increases in payment rates from private insurance companies, and general uncertainty in the healthcare market. The year 2012 marks the seventh consecutive year where more nonprofit hospital debt has been downgraded than upgraded. Even the $6 billion or so in credit upgrades in 2012 – seemingly good news – was due primarily to weaker hospitals being acquired by stronger ones, allowing their debt to be assumed by hospitals with better credit ratings. Another factor cited was the improved stock market investment returns by some hospitals, which allowed some to refinance existing debt at lower interest rates.

In a sweeping generalization, Jan Jennings, the CEO of the consulting company American Healthcare Solutions, told Trib Total Media, “I hate to admit this, but hospitals generally are not that well-run…Things on the healthcare scene are very ugly.”

We all know that not all nonprofit hospitals are equally well run, and any organization under stress is likely to show weaknesses that remain hidden when times are good. We’re less convinced, however, that Jennings’s opinion is an accurate depiction of all nonprofit hospitals across the country. What seems undeniable, however, is what Moody’s is telling its clients: financial pressures and market uncertainty in healthcare continue to take a toll on nonprofit hospitals. –Michael Wyland