During the first quarter of 2013, Moody's reported that it affirmed 55 ratings, representing 86% of all rating activity and affecting approximately $25.3 billion in debt. Moody's expects more downgrades than upgrades in the second quarter of 2013, as there are already three hospitals under review for downgrade.
Smaller healthcare providers are at a disadvantage when compared with larger hospitals and systems, Goldstein says, because of their limited leverage with payers and vendors, lack of economies of scale, and over-reliance on a few key physicians.
That is not to suggest that larger not-for-profit hospitals and health systems are skating along. Moody's outlook for the entire sector is negative.
"We would say that over the next one to two years things are going to be challenging for everyone, for hospitals of all sizes," Goldstein says. "It is not that we have 'X' outlook for the big systems and 'Y' outlook for the small guys. It's negative for the whole industry. Things will get tougher. Things already got tougher April 1 with sequestration. That wasn't a change in how healthcare is delivered. That was just a top-line 2% cut. With or without sequestration things will be tougher over the next couple of years. We are in a big transformational period right now."
Moody's rates about 470 distinct borrowers, ranging from individual hospitals to health systems with dozens of hospitals. Goldstein estimates that Moody's ratings "touch about 1,200 hospitals."