Fitch: California Non-Profit Hospitals Continue to Show Strength in Challenging Economy

SAN FRANCISCO--(BUSINESS WIRE)-- According to a new report by Fitch Ratings, California non-profit hospitals' credit quality remains strong despite the local severity of the economic downturn and the state's unique operating mandates. The state's large integrated providers have demonstrated credit stability or improvement by leveraging their market presence to garner favorable contracting rates, meticulously managing their expenses, and restructuring their assets and liabilities.

With a high concentration of large regional systems, Fitch-rated California hospitals are skewed to the higher end of the rating scale compared with national medians. As of October 2010, Fitch rated 24 California-based hospitals and health systems, with the rating distribution heavily weighted on the higher end of the scale compared with Fitch's overall hospital portfolio. Of the 24 ratings, 16 are rated in the 'A' category or higher, seven in the 'BBB' category, and one 'D' (bond payment default by Valley Health System).

Fitch says as a class, Fitch-rated California hospitals have operating cash flow margins that outperform Fitch-rated hospitals nationwide. The financial performance of Fitch-rated California hospitals is relatively strong given the disproportionate concentration of large regional health systems within the Fitch-rated portfolio. The median total operating revenue of the California acute care hospitals is $1.35 billion, compared with the nationwide median of $506 million.

In addition to facing operational pressure as a result of healthcare reform, California hospitals face unique challenges that can strain ratings. The state's mandate to seismically retrofit or replace hospital facilities, exposure to the state's chronic late budgets, having one of the lowest Medicaid reimbursement rates and difficult staffing requirements are all continuous credit challenges for hospitals in the state.

Fitch's outlook for its rated California credits does not differ from the outlook for its overall rated entities and generally expects top tier credits to continue to produce strong results, while weaker credits may deteriorate or merge into larger providers as the credit gap continues to widen. Fitch believes that large integrated healthcare delivery systems are better positioned to capitalize on the post-reform environment given their level of information technology investments, physician alignment strategies, and focus on care coordination.

The special report, 'Commentary on California Nonprofit Hospitals', is available on Fitch's website at 'www.fitchratings.com'.

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

Applicable Criteria and Related Research: Commentary on California Nonprofit Hospitals

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=565345

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KEYWORDS:   United States  North America  California  New York

INDUSTRY KEYWORDS:   Health  Hospitals

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