Moody's: Academic medical centers in relatively strong position

Academic medical centers are generally in a stronger financial position than other kinds of hospitals, according to a new report by Moody's Investors Service.

Moody's said the credit ratings of such hospitals are in particularly strong shape due to their size, strong market position and partnerships with top universities. Their median credit rating is A1, versus A3 for all not-for-profit hospitals.

Moody's has been bearish on not-for-profit hospitals. Last November, it issued a negative outlook for the group for the sixth consecutive year, FierceHealthFinance reported.

Academic medical center hospitals "benefit through strategic and financial collaboration, coordinated fundraising or direct university financial assistance or liquidity support to the hospital during challenging financial times," Moody's Vice President and Senior Credit Officer Kimberly Tuby said in a statement. "Further, healthy relationships with universities can help strengthen an AMC hospital's brand and name recognition, market position, and enhance physician and patient recruitment."

However, academic medical centers face different challenges than other hospitals. Many have a more difficult payer mix than non-academic hospitals--their median exposure to Medicaid risk is about 40 percent higher than non-academic hospitals. They are also often expected to make financial remittances to their affiliated universities. Moody's noted that the median operating cash flow for academic medical centers was 9.1 percent, versus 9.5 percent for non-academic hospitals.

And while the median total operating revenue for academic medical centers is $1.2 billion and the median annual revenue growth is 6.6 percent, expenses are growing at a median clip of 7 percent.

"Although academic medical center hospitals receive specific funding to support their research and teaching missions, these lines of business often operate at break-even or deficit levels, requiring organizational subsidies and depressing AMC hospitals' overall operating performance" Moody's Vice President and Analyst Daniel Steingart said in the report statement.

"Fundraising, endowment spending, and surpluses generated from patient care are often critical to supporting these non-clinical activities, but do not offset other economic challenges."

To learn more:
- read the Moody's report statement