Not-for-Profit Healthcare Outlook Remains Negative

The sputtering national economy, a rising federal deficit, and lean state budgets are getting blamed for debt downgrades in the not-for-profit healthcare sector which are expected to continue through the rest of the year and beyond, according to Moody's Investors Service.

"It is a negative outlook," says Lisa Goldstein, associate managing director at the bond rating agency. "We have had a negative outlook on this sector since November 2008, starting with the financial crisis. It speaks to continued pressure on hospitals financial performance for the next 12 to 18 months."

The federal deficit and strains on state budgets could result in reduced funding for Medicare and Medicaid, which could affect patient volumes and reimbursements, Goldstein says.  

In the second quarter of 2012, the $2.78 billion of downgraded debt of the US not-for-profit healthcare sector exceeded the dollar amount of upgraded debt, $2.11 billion, for a ratio of 1.32 to 1. Moody's said the finding contradicts eight of the past 13 quarters in which total upgraded debt exceeded downgraded debt. Many of the upgrades were for larger systems that carry more debt than smaller providers.