Lower revenues and increased competition are taking a toll on small non-profit hospitals, and the financial profiles of those with lower credit ratings will likely continue to weaken, according to a new report from Standard & Poor's Ratings Services (S&P). While some hospitals appeared to successfully adapt to smaller revenues, the report states, others had trouble coping with decreased volume, the expense of electronic health records and physician turnover.
S&P defined small hospitals as those with annual net patient revenues of less than $125 million, an increase from the $100 million threshold it used in 2010 for its previous report. The ratings company then graded 80 such hospitals' credit and found that 9 percent of small hospitals received a rating downgrade compared to 6 percent of all stand-alone hospitals, and took negative outlook actions on 15 percent of small hospitals compared to 11 percent of all stand-alone hospitals.
Based on the 2012 and 2013 rating actions, "we are seeing some signs that higher-rated small hospitals are getting stronger, while lower-rated ones are getting weaker," the report states. "The rating distribution curve may flatten further if this trend continues and there is a growing share of ratings in both the 'A' and speculative-grade categories."
The report further found that despite increased Medicare reimbursement pressure within the healthcare industry, net patient revenue increased for 74 percent of small hospitals in 2012. This may be because small hospitals have a largely rural patient base, and as such have more leverage with regard to rate increases, according to the report.
"We believe the impact of health care reform is magnified on smaller hospitals compared with their larger peers," the report states. "Due to their narrower revenue bases, small hospitals have limited options to cope with these pressures." Small hospitals' success in the wake of healthcare reform largely depends on their market share, their management, their geographic position and the level of competition from larger providers, the report says.
An August S&P report found that although hospital net revenue growth was at its highest since 2008, their future was uncertain because of long-term reimbursement pressure and pension obligations, FierceHealthFinance previously reported.
To learn more:
- here's the S&P announcement