Standard & Poor's Ratings Services is looking to revamp how it issues credit ratings to nonprofit, standalone hospitals, and it could tinker with several hospitals' current credit position.
Last week, S&P released a request for comment, proposing changes to its hospital credit methodology. In its proposal, S&P would base a nonprofit, standalone hospital's credit on several factors. First, analysts would look at a hospital's enterprise profile, which includes industry risk, economic fundamentals, management/governance and market position (which includes market share, medical staff, payer mix and clinical quality/IT). S&P would also look at the hospital's financial profile, including financial policies, liquidity, debt/other liabilities and overall financial performance.
From there, S&P would arrive at an initial indicative rating before considering potential positive and negative environmental factors. For example, "positive overriding factors" could be high cash reserves or local tax support. Negative factors include potential bankruptcy, weak management or a limited revenue base.
S&P rates the debt of about 450 nonprofit hospitals and health systems. Based on preliminary testing, the agency said the new credit structure could affect 20 percent of its portfolio — 12 percent to 15 percent could have lower ratings, while 5 percent to 8 percent could have higher ratings, all generally by one notch.
S&P is looking for written comments by March 7, 2014. S&P analysts said they have been gradually working on changes to the company's nonprofit hospital rating structure.
"The purpose of the proposed criteria is to provide additional transparency and comparability to help market participants better understand our approach in assigning ratings to acute-care, standalone healthcare providers, to enhance the forward-looking nature of these ratings and to enable better comparisons between the sector's ratings and all other ratings," S&P said in a frequently asked questions document. "We also review and update criteria periodically as part of our normal course of business."
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