Ratings agency Moody's Investors Service has replaced its methodology for grading the financial health of nonprofit hospitals and healthcare systems.
Moody's will continue to use five separate factors for its ratings assessment: Market position; operating performance; balance sheet and capital planning; governance and management; and debt structure and legal covenants. The factors will be used in conjunction with a weighted grid that takes into account quantitative and qualitative issues, according to a new report.
Market position--the hospital's size and operating environment--comprises 45 percent of the weighting. Operating performance takes into consideration budgets and profitability relative to debt margin and accounts for 30 percent of the weight. The balance sheet and capital plan takes into account cash on hand to fund operations and its willingness to take risks in regards to debt and investment. It accounts for 25 percent of the weight.
Governance and management and debt structure and legal covenants comprise the non-quanitative factors.
Moody's does not expect the changes in methodology to change any current ratings, according to the report.
Meanwhile, Moody's predicts that market trends will continue to prompt more providers to consolidate, Bloomberg News reported earlier this month.
Altogether, Moody's rates 533 not-for-profit hospitals and systems with a combined debt of $181 billion. Ninety percent of the debt rated is investment grade, with the average rating of A3, the seventh-highest rating out of 21 overall grades.