Lower-Rated Hospitals Face Bond Challenges in 2012

So far in 2012, hospital bonds have earned a 3.3 percent return, compared with the 2.5 percent return for the entire market, but looming cuts to Medicare and Medicaid reimbursements could have a big impact on hospital portfolios, especially those with lower credit ratings, according to a Bloomberg/San Francisco Chronicle report.

This week, President Barack Obama unveiled the federal budget for fiscal year 2013. Roughly $360 billion will be cut from healthcare — $320 billion of that going toward Medicare and Medicaid.

The reductions to Medicare may affect hospitals with worse credit ratings, according to the report. In a November report from Fitch Ratings, the agency said every percentage point cut in Medicare will reduce a hospital's net patient revenue by 0.39 percent. Additionally, operating revenue could go down by 14 percent on average.

However, higher-rated institutions stand to fare well, as the bond and debt market is "going to be more issuer-specific this year than it was over the last year," said Joe Dean, head of municipal bond investments at Pacific Investment Management Co, in the report.

Related Articles on Hospital Bonds:

Ascension Health to Issue $600M in Bonds to Help Alexian Brothers Acquisition

3 Hospitals and Health Systems With Tax-Exempt, Fixed-Rate Bond Issues in Past Month

Phelps County Hospital in Missouri to Refinance More Than $10.5M in Bonds

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