Fitch Ratings

Fitch changes not-for-profit hospital outlook to negative

Anne Zieger — Wed, 03 Dec 2008 09:28:30 -0500

As the recession deepens, Fitch has changed its outlook for the not-for-profit hospital sector to negative, from a previous status of stable. Fitch noted that the recession has hit hardest on hospitals that entered the economic downturn with weaker credit ratings.

As we have already noted, fewer patients are seeking healthcare, and more are unable to pay, which is stressing the not-for-profit hospitals even further. Worse still, budget deficits are piling up at both the state and federal levels, which could hurt hospitals that depend on publicly funded health plans.

To learn more about Fitch's rating change:
- read this Modern Healthcare piece (reg. req.)

Fitch delays ratings changes given economic turmoil

Anne Zieger — Tue, 14 Oct 2008 01:58:10 -0400

A few months ago, Fitch Ratings released a report that said that ratings scales for tax-supported water- and sewer-revenue bonds would be revised, and that public finance sectors like healthcare were officially under review. Now, Fitch has announced that it would delay plans to revise its municipal ratings until 2009, given what it called the"extraordinary turmoil in the global financial markets." The announcement leaves healthcare managers somewhat in limbo, wondering when they'll be safe getting back into the financial markets.

Fitch is working on changes that will address whether constrained market access and associated market turmoil have had an impact on overall municipal credit quality, or on any particular subgroup.

In the meantime, the Federal Reserve has moved to restore confidence in frozen short-term debt markets by setting a plan in motion to buy taxable short-term loans--known as commercial paper--typically used by companies for payroll and operations. The Fed had hoped to calm investors, particularly money market funds, which are particularly prone to short-term investment.

To learn more about Fitch's plans:
- read this Modern Healthcare piece

Related Articles:
Crisis may change tax-exempt bond rating system
Fitch: Bad debt fails among for-profit hospitals during Q1 '08

SEC probes accounting problems at West Penn Allegheny hospital

Anne Zieger — Wed, 03 Sep 2008 00:21:52 -0400

West Penn Allegheny Health System is facing some fallout from its $73 million writedown.The SEC decided to look into the hospital's finances after the system announced that it had overstated its revenue by $73 million, including $67 million in patient receivables. This came after the system refinanced $758 million in bonds last year. SEC executives describe it as an "informal" inquiry.

The announcement that West Penn would take the $73 million writedown led to downgraded ratings on the Fitch and Moody's Investors Service. Fitch downgraded the bonds to BB minus from BB and placed the issue on a negative rating watch. The negative rating watch means that West Penn's ratings could fall further depending on how Fitch feels about its analysis of full fiscal year results, the state of the fiscal '09 budget and the system's efforts to improve its financial position.

As we reported previously, the system had been in financial trouble even before the $73 million issue came up, reporting an operating loss of $15.6 million on revenue of $1.1 billion for the nine months ending in March. Small wonder that the SEC is suspicious of a $73 million credit that may have come just in time for West Penn to float its bond issue successfully.

To learn more about the SEC inquiry:
- read this Pittsburgh Business Times piece

Related Articles:
West Penn Allegheny forced to adjust balance sheet
West Penn Allegheny Health profit up
Case study: West Penn begins loss-reversal plan

Fitch: Bad debt falls among for-profit hospitals during Q1 '08

Anne Zieger — Tue, 01 Jul 2008 23:32:11 -0400

Marking a welcome change of direction, bad debt fell among for-profit hospitals during the first quarter of 2008, according to a recent report from financial ratings agency Fitch Ratings. Nonetheless, for-profits still have a higher percentage of unpaid bills than their non-profit peers and physicians. Bad debt levels as a percentage of revenue fell from 18.4 percent in Q4 '07 to 17.7 percent in Q1 '08. While falling debt is always a good sign, this stands in contrast to physician practices, whose bad debt level is typically in the 5 percent to 10 percent range. It's also higher than the debt faced nonprofits, who had bad debt levels of 5.5 percent in 2006, the most recent data available. Fitch says bad debt has fallen among for-profit hospitals partly because of the number of uninsured patients being treated at such facilities, as well as more efforts by the hospitals to collect co-payments up front and improve internal and external collections efforts.

To learn more about Fitch's report:
- read this AMNews article (reg. req.)

Related Articles:
Bad debt expense drops at for-profits for Q1 '08, Fitch says
In 2007, bad debt rising for hospitals
Bad debt savages HCA, LifePoint profits
Bad debt hits Health Management Assoc. earnings

Bad debt expense drops at for-profits for Q1 '08, Fitch says

Wed, 28 May 2008 06:59:58 -0400

Well, in a season of battered markets, here's some welcome good news. According to Fitch Ratings' For-Profit Hospital Industry Quarterly Diagnosis, bad debt levels actually fell among for-profit hospitals as a percentage of revenues, from 18.4 percent in the fourth quarter of 2007 to 17.7 percent in the first quarter of 2008. Things were bad last quarter, hitting many for-profit chains' bottom lines hard, and analysts had actually anticipated higher levels of unpaid medical bills this quarter.

Among the for-profit chains, Tenet had the lowest bad debt expense this quarter, with 12.1 percent of revenues, followed by LifePoint Hospitals, with 13.5 percent adjusted bad debt expense as a percentage of revenues. Tenet's numbers were improved by lower uninsured and charity care admissions.

In the recent report, Fitch analyst Lauren Coste said that relatively low unemployment rates were the main reason the for-profits' bad debt didn't climb. Also, she noted that hospitals have adopted more conservative accounting practices over the past couple of years, which have limited industry exposure to special bad debt charges. However, this interlude may not last. If job losses climb, or if states cut Medicaid funding, bad debt could begin to accelerate again, Coste noted.

To learn more about the report:
- read this InsideARM article

ALSO: Missouri hospitals wish they had it so good. According to the state's trade association, hospitals there saw uncompensated care grow 32 percent. Article

Related Articles:
In 2007, bad debt rising for hospitals
Bad debt savages HCA, LifePoint profits
Bad debt hits Health Management Assoc. earnings

Crisis may change tax-exempt bond rating system

Wed, 09 Apr 2008 06:59:58 -0400

With public-finance markets in turmoil, and auction-rate bond interest rates spiking to unheard-of levels, officials are starting to pay attention to the way agencies evaluate bonds. Traditionally, there's been a big gulf between the tax-exempt, municipal bond market accessed by not-for-profit hospitals and the corporate bond market tapped by for-profits. The two have been rated and managed separately for a very long time. Now, some officials are suggesting that there should be a single global rating system that would spontaneously improve the ratings of most municipal bond insurers.

Generally speaking, it has been easier to get a high rating in the corporate bond market than it is in municipal bonds. To make things work on their side, not-for-profit issuers have been using bond insurers to get the AA rating they needed to attract investors. For a long time, that was OK, but when the subprime mess turned many financial markets upside down (when the bond insurers themselves started to go south), it wasn't any more. Through no fault of their own, hospital bond issue rates skyrocketed as bond insurers' own ratings fell. This led to calls for a new ratings system.

Now, the three major ratings agencies have begun to mull such changes. Moody's for example, plans to begin issuing globally-scaled ratings for tax-exempt bonds on an issuer's request. Fitch Ratings and Standard & Poor's, meanwhile, are hanging back a bit and considering their options. However, they're likely to face continuing pressure to make more adjustments, as the tax-exempt muni bond market is far from healed.

To learn more about this issue:
- read this Modern Healthcare piece (sub. req.)

Related Articles:
Auction-rate bond crisis bodes ill for non-profit providers. Bond report
CA hospitals allowed to restructure debt. Bond report
MA bond authorities make transactions easier. Bond report
IRS cracking down on post-issue bond proceed use. Report

Trend: Non-profits broadening charity care access

Wed, 12 Mar 2008 07:59:58 -0400

Hoping to make a good showing when they file their first Form 990 with the IRS, not-for-profit hospitals are already beginning to make big changes to their charity care policies, according to one financial analyst. Though it will be a year or two before hospitals must file the Form 990--Schedule H, which defines and discloses their charity care spending and policies on charity and bad debt--some hospitals are already taking aggressive steps to demonstrate that they're doing the right thing. Many are lowering the threshold at which a patient can qualify for free care, according to Jeff Schaub, senior director with the Fitch Ratings public health care group. In fact, some hospitals have raised the free-care limit drastically, from 100 percent to 400 percent of the poverty level, he said. Meanwhile, it also relieves for-profits of some of their charity-care load, which could have other long-term competitive results.

All of this doesn't do much to clear up the muddy waters around the issue of what charity care really is vs. what bad debt is. It's worth noting, however, that this essentially shifts costs that would have been classified as bad debt into the charity care side of the balance sheet. The Healthcare Financial Management Association, for its part, suggests that financial execs rely on the Financial Accounting Standards Board's definitions of the two when attempting to demonstrate that they're upping charity care levels.

To learn more about this issue:
- read this InsideARM piece

ALSO: With Form 990 forcing hospitals to take a closer look at their bad debt, a great number of facilities are likely to begin selling that debt, experts predict. Article

Related Articles:
In 2007, bad debt rising for hospitals. Report
Bad debt savages HCA, LifePoint profits. Report
Bad debt hits Health Management Assoc. earnings. Report
Ratings firms slam nonprofit hospital finances. Report
Officials say 'prove it!' on charity care. Report