U.S. healthcare system median ratios showed a "modest improvement" in fiscal 2009 across most of the rating spectrum, according to Standard & Poor's Ratings Services.
S&P's healthcare analysts view the 2009 improved operating performance, seen across all of the firm's rating levels for healthcare systems, as reflective of a combination of "sharper expense management" and revenue cycle improvements.
Standard & Poor's rates 143 healthcare systems, which represent approximately 1,250 hospitals. Stand-alone hospitals' 2009 ratios also improved and stabilized.
The New York-based ratings firm discovered notable improvement for liquidity ratios when comparing December 2009 and December 2008 results. S&P attributed this improvement to the recovery of investment markets over the past year and efforts to curtail capital expenditures.
Most healthcare systems have high exposure to equity markets, so investment market performance can greatly affect healthcare system ratios, the report noted. For providers with fiscal years that ended June 30, 2009, S&P found a strong likelihood of investment losses and depressed nonoperating earnings. But systems with fiscal years that ended Dec. 31, 2009, were more likely to produce positive investment returns, especially compared with the large losses likely seen in their Dec. 31, 2008 audits.
Standard & Poor's officials said the data indicates that the not-for-profit hospital sector has made "meaningful and measurable progress" this past year, although current medians, while stable, are generally below the peaks reached in 2007 and 2006.
Nevertheless, the report speculates that economic and operational pressures will likely continue in both the short and long term for healthcare systems. Short-term issues include soft volume trends, rising costs, weakening payer mixes, ongoing capital needs and state Medicaid funding reductions.
The longer-term challenges presented by healthcare reform legislation will become clearer as the industry approaches 2014, S&P notes. Thus, despite the current stabilization of the sector's financial profile, the firm still has concerns about the "depth and breadth" of the overall rebound in operations and its longer-term sustainability.
Compared with stand-alone hospitals, S&P believes many larger systems remain well positioned to withstand operating and market pressures due to revenue and geographic diversity as well as large revenue bases.