Despite some stability in healthcare industry, pressures remain

The healthcare industry is once again starting to show signs of stability after several topsy-turvy years, said Martin Arrick, managing director of corporate and government ratings for the not-for-profit healthcare group at Standard & Poor's, at last week's Healthcare Financial Management Association Executive Conference.

The ratings agency expects hospitals to continue their slow recovery, with patient volumes increasing and access to capital improving. However, incremental pressures will continue to harass providers in the coming years, said Arrick. These include continued bad debt and charity-care growth, Medicaid and broader state budget pressures, employer-based insurance trends, utilization trends, more physician competition, more expensive capital and changes in how to access capital, and commercial plans experiencing rate pressures.

On the positive side, so far this year healthcare providers have been given more ratings upgrades than downgrades and more positive outlook changes than negative ones. However, Arrick expects those ratios to level out, or even reverse, as the year continues. Standard & Poor's will likely "be at 50-50 this year" in issuing upgrades vs. downgrades, said Arrick. "To me, that's stabilization and, to some degree, improvement." However, the company probably will issue more negative outlooks overall than positive outlooks.

The healthcare sector's bounce-back toward stability began to gain traction in mid-2009 and picked up steam in the fourth quarter, said Arrick. Non-operating revenues and operating margins both have improved. The median fiscal year (FY) 2009 non-operating revenue margin was 0.2 percent, and the median operating margin was 2.2 percent.

To learn more about Arrick's views:
- read: the Healthcare Financial News article