S&P: Pension costs a fiscal drag on hospitals, systems

Ongoing, huge pension obligations and expenses are likely to burden nonprofit hospitals for years to come, Reuters reported.

According to Standard & Poor's, the median funded status of defined benefit pension plans for hospitals totaled 69.4 percent in 2012, down from 72.6 percent in 2011. A pension plan's funded status refers to the value of its assets as compared to its liabilities.

"Low discount rates have hampered the improvement in funding levels despite a rebound in asset values during the past two years," S&P credit analyst Liz Sweeney said in a statement.

The discount rate determines the ability of pension plans to peg future benefits to their current value. A higher rate is a positive indicator, but the median rate dropped to 4.3 percent in 2012, down from 5.2 percent in 2011.

Standard & Poor's believes hospitals will see some fiscal relief in the form of a new federal law that eases how the discount rate is calculated, but concluded it will be temporary and won't change the overall economics of pension plans.

Moreover, many hospitals and health systems will likely redesign their pension plans in the coming years to cut costs, according to Reuters.

Pension funding problems can land hospitals in hot water, as evidenced by two ex-employees of Catholic Health East filing a federal lawsuit this month claiming the nonprofit hospital chain's pension plans are underfunded by $438 million, FierceHealthcare previously reported.

The rating service's 2012 survey counted only 142 hospitals and health systems compared with 328 in 2011 because S&P said the audited 2012 statements for many hospitals and systems are not yet available.

To learn more:
- read the Reuters article
- here's the S&P statement (registration may be required)