Moody's: AMCs maintain viability through strong brands, large size and diverse revenue

Research universities that have academic medical centers with strong credit mitigate the risk of rising healthcare revenue exposure, according to fiscal 2015 medians data from Moody's Investors Service.

AMCs' credit strength, along with pricing power and growing wealth, will continue to counterbalance their high-cost and capital-intensive business models.

Here are nine more takeaways from the Moody's report.

1. Strong demand, size and diversity promote AMC universities' revenue growth. AMC universities benefit from significant scale and scope of operations, which generally create stronger revenue growth than non-AMC public and private universities. In fiscal 2015, AMC median revenue growth was 5.5 percent, compared with 3 to 4 percent for the rest of the sector.

2. Patient care revenue will continue to rise, but at a slower pace. More than 75 percent of AMC universities had over 5 percent annual patient care revenue growth in fiscal 2015. However, the rate of growth in patient care will decelerate as the focus of clinical care shifts from inpatient services to outpatient, which has lower reimbursement rates.

3. Research revenue will remain relatively stable at AMC universities. Grant and contract research revenue remains stable at AMC universities despite slowed federal funding over recent years, reflecting their strong national profiles and vital research roles.

4. Preeminent academic reputations and graduate education underlay AMC tuition pricing power. AMCs will continue to translate their reputation in research and patient care into recruitment of top-tier faculty and student demand, as shown by higher median net tuition per student than the sector medians for public and private universities.

5. AMCs benefit from significant accumulated wealth and fundraising. In 2015, private AMC universities had a high median $5.6 billion of total cash and investments and public AMC universities had a median of $3.2 billion total cash and investments, including support foundations. Over the last five years, the median total cash and investments for public and private AMC universities has increased by roughly 30 percent.

6. Liquidity management is critical for AMC universities, particularly those with extensive clinical operations or more variable research funding. Median monthly days cash on hand ratios are adequate, but not very strong given the wide scope of operations: 165 monthly days cash for public AMC universities and 242 days cash for private AMC universities.

7. AMC universities will continue to be powerful fundraisers. The median three-year average gift revenue is nearly $202 million for private university AMCs and $123 million for public university AMCs. The three-year average gift revenue for both private and public AMC universities as increased by about 35 percent over the last five years.

8. AMCs' competitive advantage depends on high capital investment. While AMCs are capital intensive by nature — new, cutting-edge facilities are required to recruit and retain top researchers, physicians and students — they will continue to spend more on capital projects than their public and private university peers.

9. AMC universities benefit from diverse revenue. AMC universities strong revenue diversity is due to their three-part mission of education, patient care and research. Most AMCs are highly rated institutions with global market reach and strong fundraising. On a median basis, AMC universities do not have a majority dependence on any one source, effectively cushioning the organization from revenue volatility.

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