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Moody’s: Consolidation Widens Financial Performance Among Rating Categories

When you consider the medians of the hospitals/systems at the two ends of the rating scale—Aa and speculative grade—there is greater dispersion of minimum, maximum, mean and standard deviation in the FY2015 not-for-profit healthcare medians. Moody’s Investors Service analysts noted in one of its recent reports on healthcare medians that “continued consolidation and the aim for size and synergies will continue to widen the varying financial performance among the rating categories. (Medians – Consolidation and the Quest for Size Lead to Wide Statistical Variances, Moody’s Investors Service Sector In-Depth, September 8, 2016)


The analysts noted the following key points:


Aa-rated and speculative grade health systems accounted for the highest variation in annual revenue growth.

  • Continued M&A, strategic partnerships and other consolidation activity contributed to the higher revenue growth in the Aa category, which saw a median 9.5 percent revenue growth rate.
  • For speculative grade credits, heightened competition and single-site operations saw median revenue growth rate of 6.5 percent.


Speculative grade health systems showed a higher standard deviation in debt service coverage than Aa, A and Baa categories.


  • With a standard deviation of 8.7x, speculative-grade credits exhibited a wider variation than Aa, A and Baa rating categories at 5.9x, 2.8x and 4.7x, respectively.
  • The wider variation is mainly due to the smaller size of the speculative grade credits and inherently riskier market positions.


Capital spending among multistate systems showed less variation than freestanding, single-state systems partly due to the number of projects, market access and unrestricted cash reserves.


  • Multistate systems showed a 0.2x standard deviation in annual capital spending, compared to 0.8x reported for single-state systems.
  • The single-state systems’ wider standard deviation is partly due to the infrequent nature of large-scale capital projects that increase spending for a year or two. A more limited geographic footprint also drives greater variability in capital spending. In contrast, many multistate systems have projects spread among different markets resulting in a more consistent spending level.


(iProtean, now part of Veralon extends its appreciation to Moody’s Investors Service for giving us permission to quote liberally from its reports.)


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