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Despite Merger Activity, Negative Credit Conditions Persist

Philip Betbeze, for HealthLeaders Media, November 2, 2012

Moody's, the giant credit rating agency, recently reported good news about upgrades in healthcare credit ratings for the quarter, and then proceeded to dump a bucket of cold water over everything.

Despite the fact that upgrades exceeded downgrades in the nonprofit hospital and health system sector by a ratio of 3.3-1 in the third quarter, Moody's says the high number of upgrades is the result of an increase in merger and acquisition activity. It is not due to a fundamental change in underlying negative credit conditions, the agency suggests.

That makes sense. One quarter does not portend a trend.

But broadly, mergers are supposed to drive efficiencies, and to some degree, efficiencies can have a big impact on margins. So how to gauge the state of the healthcare game as the chess pieces rearrange themselves as never before?

Lisa Martin, senior vice president in the Moody's Healthcare Group, says that regardless of the news about credit upgrades, "it just so happens that in this quarter, there were more positive rating actions than negative."

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