S&P bumps up long-term ratings for not-for-profit hospitals

Standard & Poor's (S&P) outlook on not-for-profit hospitals has brightened.

The ratings agency earlier this week upgraded its long-term outlook for the sector from "negative" to "stable." S&P acknowledged in a report that the operating environment for such facilities has brightened considerably in recent months, but it was hesitant to make a change until recently.

S&P cited the ongoing Medicaid expansion as part of the Affordable Care Act and fairly intensive merger activities as contributing to an improvement to hospital finances.

"As recently as December 2014, however, we mentioned that there was 'a glimmer of relief' for healthcare providers. The glimmer emerged faster and stronger than projected, as the historical changes sweeping the healthcare delivery system are taking root slower than expected allowing providers' responses to a broad array of pressures to take hold," the report said. "Although we expect broad industry pressures to continue and even grow over time, most notably the movement toward a value versus the current fee for service orientation, we believe ratings for the vast majority of providers will remain the same over the remainder of 2015 and 2016, and upgrades and downgrades will remain balanced."

The upgrade is the second from a major ratings agency in recent weeks. Moody's also relented on its long-term negative forecast for hospitals late last month. It also cited improvement in hospital cash flow and other financial metrics.

In its report, S&P noted that it had engaged in 45 upgrades, 32 downgrades and 215 affirmations of existing ratings through the first half of the year. However, it noted that the upgrades for health systems were far higher in comparison to standalone hospitals. S&P noted in a report issued last year that many standalones are under intense financial pressure.

The ratings agency also acknowledged "that numerous pressures still exist and that the industry remains in the midst of significant transformation." Among those are continued potential weakness in payer mix and the widespread use of electronic medical records to optimize care delivery (and presumably cut down on the volume of procedures).

To learn more:
- here's the report

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