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Hospital Downgrades Accelerate in Q3

Jeff Elliott for HealthLeaders Media, October 19, 2010

More nonprofit hospitals took it on the chin during the third quarter as seen in the number of downgrades, according to Moody's Investors Service, an indication that healthcare providers continue to battle declining revenues, with little relief in sight.

With eleven downgrades and seven upgrades among not-for-profit hospitals for the period ended Sept. 30—after an even second quarter and more upgrades than downgrades in the first—the number of upgrades has continued to decline throughout the year. However, the ratio of downgrades to upgrades was on par with the same quarter in 2009.

Eisenhower Medical Center and Torrance Memorial Medical Center in California and Lowell General Hospital in Massachusetts were among the notable institutions whose debt was downgraded in the quarter. Five of the eleven total downgrades were for providers in the Northeast, with three in Pennsylvania, solidifying the Keystone State as the top region for hospital downgrades, claiming nearly one-third of all downgrades since the beginning of 2010.

The silver lining in these results is that the value of the upgraded and downgraded debt was generally equal at about $1.2 billion as three large providers, each with more than $300 million in debt received upgrades, according to Lisa Goldstein, Moody's senior vice president and not-for-profit healthcare sector ratings team leader.

Four of the seven upgrades occurred as the result of strong operating performance, with an additional two (Lenox Hill Hospital in New York and St. Luke's Hospital in Ohio) gaining ratings upgrades via merger with a larger system.

Moody's said that ratings affirmations continue to represent the bulk of ratings action with 63 affirmed ratings during the third quarter, or 79 percent of all ratings actions. At quarter's end, three ratings were on the watchlist for possible downgrade, however.

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