Hospital Survival May Depend on Mergers

“Industrywide, we believe that financial and operational difficulties tend to be more problematic for lower-rated providers because those providers are more likely to lack the operational flexibility and balance sheet cushion needed to withstand additional strain,” the report states.

Moreover the S&P report notes that the instability will likely prevail with this group as they contend with softer volumes, potential state Medicaid funding and eligibility changes, high debt and charity care, technology investment and facility upkeep. 

S&P believes that the Medicare rates will likely cause lower total inpatient payments for acute care hospitals in 2011—which is a fair assumption. Moreover, the uncertainty surrounding the Patient Protection and Affordable Care Act’s as yet unwritten rules are giving them cause for pause. “We believe lower-rated providers may face greater rating volatility because, in our experience, they generally have thinner margins and weaker balance sheets and as such are less capable of absorbing additional strain,” they note in the report.

Sounds like S&P thinks it will be a tough time to be a lower-rated hospital, many of which are small, stand alone hospitals.