October 8, 1998 | Read Time: 1 minute
After a short period of financial improvement, non-profit hospitals will face a “bumpy road” over the next five years, says a new report from Moody’s Investors Service, a major bond-rating service.
In the long run, however, the financial picture should brighten as many hospitals adjust to a wave of mergers and improve their operating efficiency, according to the report.
Moody’s said factors influencing the hospitals’ finances include the growing size and complexity of mergers and debt-financed acquisitions, expanding capital needs among the merged hospitals, fiscal pressures from managed care, proposed cuts in government health-care spending, relaxed security provisions for bonds, the potential for increased government regulation, and possible effects of a stock-market decline.
The report includes ratings for approximately 500 non-profit hospitals and systems with nearly $57-billion in long-term debt.
The average rating for the hospitals was A3, fourth on a 21-category scale.
The lower the rating, the greater the risk a hospital or health system will default on its debt, making it difficult to obtain bank loans or sell bonds.
The report says that in most cases, mergers and other forms of integration of health-care institutions would be financially beneficial.
Advantages include gains in market share, enhanced negotiating leverage, economies of scale, and improved operating efficiencies, according to the report.
But Moody’s predicted that some hospital systems will falter as they try to operate as large, integrated health-care systems.
