Grim Outlook For Healthcare, Hospital Sector In 2015: Rating Agencies

Robin Respaut | Reuters | December 16, 2014

The outlook for non-profit healthcare remains dour for 2015, as hospital operating margins continue to face pressure from rising costs and weaker reimbursement.  The three major credit ratings agencies gave the healthcare and hospital sector a negative outlook next year, citing anticipated downgrades, declining operating cash flows, and on-going uncertainties surrounding the implementation of the Affordable Care Act.  "The negative pressures facing most providers are widespread," said Martin Arrick, services analyst with Standard & Poor's Ratings. "Many providers will not be able to adapt."

S&P forecasted more downgrades than upgrades among not-for-profit healthcare providers for a third consecutive year, as operating margins are pinched by rising costs. "There would likely have been more downgrades in 2014 if not for the high level of merger and acquisition activity which often precluded downgrades and in many cases led directly to upgrades," S&P said in its 2015 outlook.

Moody's Investors Service anticipated another 12 to 18 months of weak performance, with large hospital systems faring better from economies of scale and the ability to drive revenue growth through expanded services.  "The largest hospitals are getting stronger, while the smaller hospitals get weaker," Moody's senior analyst Daniel Steingart said...