New York, March 03, 2009 -- The negative outlook for the for-profit hospital sector reflects the assumption that a deteriorating US economy will aggravate challenges such as weak volume trends and increasing exposure to bad debt expenses, says Moody's Investors Service.
"Factors influencing bad debt expense are likely to accelerate due to rising unemployment and the continued shift in healthcare payment responsibility toward the individual," says Moody's VP-Senior Credit Officer Dean Diaz.
However, the majority of rated issuers still have adequate liquidity in the form of cash and available revolving credit, says Diaz. There is likely to be a more concerted reaction to these trends in the form of increased cost-containment discipline by hospital operators, as well as cutbacks in discretionary capital expenditures and expansion projects.
Although the US for-profit hospital sector is less affected by the current economic environment than other corporate sectors, the ratings agency says that hospitals could find it increasingly difficult to achieve volume growth, as patients delay elective procedures or lose insurance coverage.
"We expect to see more of the weak volume growth trends experienced throughout 2008," says Diaz, "and historic levels of pricing growth may become difficult to sustain."
Moreover, there may be less visibility into future pricing trends, due to weaker operating performances among the commercial health insurers, says Moody's.
A combination of these factors may pressure margins and limit near-term improvements in credit metrics, says Diaz. These include the continued development of physician employment trends and still-high costs for pharmaceuticals and medical devices.