Not-for-profit hospitals and health systems in the United States will likely face increased pressure over the next several years on their pension funds, according to Standard & Poor's Ratings Services.
"We believe that the costs associated with addressing these needs will further challenge a sector already coping with significant challenges such as softer patient volumes and cash reserves," said Standard & Poor's credit analyst Liz Sweeney. "While many providers' financial and operating performances have rebounded from last year's lows, we believe that pension funding is one of the key factors that will likely weigh on the sector for a long time."
Since late 2008, Standard & Poor's has seen pension funding levels drop for many hospitals' and health systems' defined-benefit plans. Sweeney said a look at rating actions over the last year indicates that pension funding has contributed to credit pressure.
However, S&P says the issue isn't often a primary reason for rating actions, partly because pensions are long-term obligations whose values move up and down with investment markets and actuarial changes.
The median pension funding status for defined-benefit plans of not-for-profit hospitals and health systems in Standard & Poor's sample fell to 68.6 percent in fiscal 2009, from 82.9 percent in fiscal 2008 and 90.4 percent in fiscal 2007.