Fitch: Acquired Revenue Growth Bolsters Weak Organic Trends in U.S. For-Profit Hospital Sector

NEW YORK--(BUSINESS WIRE)-- Weak trends in organic patient volume growth persisted in the U.S. for-profit hospital sector in the first quarter of 2011 (1Q'11). Top-line growth continued to be supported by strong pricing trends. Companies in the sector have also been successful in augmenting weak organic growth with acquired revenue.

Across the sector, same-hospital admissions declined 1.2% and same-hospital adjusted admissions grew 1% in 1Q'11. While organic volume growth in 1Q'11 improved sequentially versus a very weak 4Q'10, the year-over-year trend continues to be lackluster.

Fitch is affirming its outlook for flat to slight positive growth in organic patient volumes for the sector in the second half of 2011 (2H'11). Particularly given recently disappointing economic data on jobs growth and unemployment, there is no apparent near-term catalyst for improvement in the weak organic trend.

Acquired revenue augmented weak organic growth in 1Q'11, particularly for smaller operators. Fitch expects companies to continue to actively acquire given their flush liquidity profiles, a good pipeline of potential targets, and attractive asset valuations.

Most companies in the sector are generating solid levels of free cash flow (FCF), and prioritizing use of cash to fund acquisitions of hospitals and outpatient facilities. Near-term debt maturities are manageable. HCA's May 2011 amendment to its bank credit facilities has significantly reduced the company's 2012 - 2013 maturity cliff. Operating headroom under bank facility financial maintenance covenants is adequate, but not ample, for most issuers.

The full report 'Fitch's For-Profit Hospital Industry Quarterly Diagnosis: First-Quarter 2011' is available at 'www.fitchratings.com.' It provides description of recent rating actions and potential rating triggers, an overview of the sector's liquidity profile, including information on maturities and debt covenants, and a review of recent industry operating trends.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: For-Profit Hospital Industry Quarterly Diagnosis First-Quarter 2011

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=638785

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KEYWORDS:   United States  North America  New York

INDUSTRY KEYWORDS:   Health  Hospitals  Professional Services  Finance

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