Nonprofit Hospitals Showing Financial Improvement, says Moody's

Despite challenging economic and credit conditions, bond ratings at 20 nonprofit hospitals and health systems have been upgraded since late 2008, Moody's Investors Service said in a new report that identifies common factors that have contributed to their success.

"While downgrades will likely continue to outnumber upgrades in coming months, we expect some upgrades will continue to occur as some hospitals continue to navigate through these times better than others," said Moody's Associate Analyst Jae Choi, author of the report: Diagnosing Not-for-Profit Hospital Upgrades: Rating Upgrades Continue Despite Challenging Industry Credit Conditions.

"For some, the upgrades represent a return to a hospital's prior bond rating," Choi said.

Moody's said the 20 upgrades were driven by one or more factors, including strong management and governance practices, market success with growth in an existing or new service line, and improved financial performance.

"Those management practices include the setting of clear capital and operating goals, close tracking of performance indicators, and tight management of capital project costs," Choi said. "Another key practice is the ability to adjust strategy in the face of recession and recruitment and the retention of talented senior managers."

Choi said a nonprofit hospital can also strengthen its credit standing by demonstrated financial and strategic support from a parent or a closely aligned enterprise such as a university or municipality, and through timely completion of major capital projects that have met or exceeded financial projections.

"It is clear that the upgraded hospital systems benefit from proactive management teams and actively engaged boards of directors," Choi said. "They are better positioned to weather the current credit stresses because they know how to leverage strengths, successfully identify growth opportunities, and maintain strong expense controls."