S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Health CareNot-For-Profit Health CareThe not-for-profit health care sector encompassesa variety of different types of health care entitiesseeking access to the capital markets. As a result,Standard & Poor’s Ratings Services rating criteriacovers a range of nonprofit health care providers inaddition to single-site hospitals and multi-hospitalsystems. While each provider has unique areas ofanalytical focus, the framework for all of them issimilar. Standard & Poor’s continues to emphasizequalitative and quantitative factors in determiningthe rating of a health care entity. However, intoday’s more competitive and continually evolvinghealth care environment, an examination of theprovider’s competitive position—including thenature of the market, market share, relationshipswith key market constituents, and cost structure—isessential to our evaluation.centers, and large medical centers draw patients frombroader regional bases, providing some insulationfrom local economic cycles. This information feedsinto Standard & Poor’s assessment of demand forthe institution’s services, its market position relativeto the needs of the population and to the competition,and the evaluation of the institution’s strategicplans. The reimbursement and planning environmentalso is an important service area characteristic, whichfrequently affects financial results. Some states haverate setting or planning regulations, such as certificatesof need and Medicaid managed care initiatives,in an attempt to control health care costs and expenditures.Therefore, an understanding of the uniquefeatures of a state’s reimbursement and health-planningenvironment is an important element in understandinga provider’s fiscal well being.Demand And Service Area CharacteristicsOverall measures of business volume remain animportant analytical tool, although the interpretationof volume data must be analyzed carefully. Inmarkets with high managed care penetration,analysis of volume trends must include a review ofpayment terms and overall profitability of businesslines. Although traditional inpatient and outpatientstatistics are analyzed, Standard & Poor’salso focuses on adjusted admissions and averagedaily census to gauge the revenue-producingcapacity of an organization, along with the reimbursementrate environment.To the extent that utilization is flat or declining,Standard & Poor’s is interested in a provider’s abilityto control resource consumption and preservecash flow. Population trends, unemployment rates,local wealth levels, the size of the region’s uninsuredpopulation, and major employers are analyzedto determine their effect on health careutilization and payor profile. Additionally, the populationprofile is important in determining the typeof services needed. Typically, an older population islikely to require more intense inpatient servicesthan a younger population, which may be mosteffectively treated on an outpatient basis.The types and levels of services provided areimportant analytical considerations affecting theinstitution’s competitive and financial position. Forexample, major teaching hospitals, regional referralInstitutional Characteristics And Competitive ProfileThe competitive environment—always an importantelement—has become even more so as thirdparty contracting has contributed to overallheightened competition for patients on an inpatientand outpatient basis. An in-depth understandingof the provider’s market share over timefor key services, centers of excellence, and competitiveposition in its primary and secondaryservice areas is a critically important area of focusfor Standard & Poor’s as an indicator of creditstrength. In addition, affiliations with otherproviders are a key issue, as consolidationremains a key factor in most markets. Standard &Poor’s must be fully aware of the market dynamicsof both the credit being rated as well as itscompetitors. Understanding current strategicalignments and payor relations for all marketproviders help Standard & Poor’s better predictan individual hospital’s future.Standard & Poor’s reviews the size of theprovider’s medical staff, the average age of the staff,and level of board certification and admission dispersionamong the top admitters. The ability toattract and retain new doctors is another usefulindicator. Additions and deletions to staff—traditionallyan area of focus—include an emphasis onrecruitment of primary-care physicians.Given the role of primary-care physicians to influencepatient flow and resource utilization, it is impor-www.standardandpoors.com153