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.

Lower-Rated Hospitals Face Bond Challenges in 2012

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