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

Health Caretant for Standard & Poor’s to understand the relationsthat a provider has with primary-care physicians,as well as with the rest of the medical staff,including an understanding of practice patterns, andloyalty of the medical staff to the institution.Standard & Poor’s also factors the financial performanceof physician practices into ratings wherehospitals, systems, and managed care corporationsemploy and manage doctors. Whether these practicesare inside or outside the obligated group,Standard & Poor’s incorporates this business lineinto the rating through analysis of financial performance,strategic vision, and quality of management.The successful operation of physician hospitalorganizations or similar structures is viewed positivelyif it enhances physician loyalty and establishesappropriate financial incentives. The ability ofhospitals and physicians to negotiate third-partycontracts, as a single unit remains helpful in manymarkets although this has become less prominentover the past few years as exclusive managed carecontracts have been replaced by broader point ofservice networks. The role of information technologyand electronic medical records is becomingincreasingly important both as a means to improvequality of care, meet evolving standards of care,and pay-for-performance requirements, but also asa physician recruiting and retention tool. As relationshipswith physicians have evolved,Standard & Poor’s also recognizes that relationsbetween other providers and insurers have alsochanged. It is important to highlight these key relationshipsduring the rating process, particularlysince affiliation agreements and network formationare important to overall strategy.Management And Administrative FactorsOne of the best indicators of management’s abilityis the provider’s track record. However, given thecompetitive operating and reimbursement environment,the past may not always be the best predictorof future results. Therefore, Standard & Poor’sanalysis of management seeks to determine whetherthe management team exhibits the depth and experienceto provide leadership, deal effectively withthe medical staff, budget effectively, monitor andcontrol financial and personnel resources, define thehospital’s role, and develop and implement adynamic strategic plan, including an effective informationtechnology program, to enhance the overallhealth of the organization.Management’s ability to assess its institution’sstrengths and weaknesses and to develop soundstrategies to enhance the institution’s competitiveposition is crucial to continued success. In meetingswith Standard & Poor’s, management teams shouldbe prepared to discuss these topics in detail. Theprovider’s management, information technology,and capital budgeting systems should be appropriatefor the size, type, and complexity of the institution.Standard & Poor’s discusses with managementthe types and frequency of monitoring and reportingto the staff and to the board of trustees.The role of the board and its interaction with themanagement team continue to be areas of analyticalfocus, and a meeting with the member of the boardof trustees is desirable. The board’s size, composition,structure, and activity are noted, with particularconsideration given to its participation in settingstrategic and financial policies. In addition manynot-for-profit boards have adopted some or all ofthe rules articulated in the federal Sarbannes-Oxleylegislation. It is helpful to understand the Boardview of these rules and what, if any, have beenadopted by the Board.Another area of discussion is risk managementand the hospital’s malpractice coverage and history.The ability to get reasonably priced malpracticeinsurance is also examined, along with generalproperty and casualty insurance. Overall levels ofrisk retention as well as diversification of insurancerisk are examined to see if the provider is overreliant on their own balance sheet for first dollarcoverage up to the retention limits or if there is anover reliance on any one insurance company. To theextent an organization relies on a captive insurancecompany additional information is likely to berequested regarded the captive’s performance, fundinglevels at the captive as well as captive polices onreinsurance to make sure the captive itself has managedits risk appropriately.Financial FactorsFinancial position and performance are essentialelements of Standard & Poor’s analysis. However, ifa provider’s business fundamentals are not sound,currently sound financial performance and positionmay not be sufficient to offset longer-term businessStandard & Poor’s Rated Health Care ProvidersStandard & Poor’s rates a broad spectrum of health careproviders, including but not limited to:■ Single-site hospitals-including rehabilitation, children’s,cancer centers and psychiatric institutions;■ Multi-hospital systems;■ Academic medical centers;■ Physician groups and faculty practice plans;■ Continuing care retirement communities andnursinghomes; and■ Human Service Providers154 Standard & Poor’s Public Finance Criteria 2007