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

Health CareRating CriteriaStandard & Poor’s Ratings Services applies the followingcriteria to the outstanding public financegroup practice ratings. In addition, portions of thecriteria are applicable to the analysis of physiciancomponents in integrated delivery systems.Rating considerations for not-for-profit physiciangroups include analysis in the following categories:■ Physicians■ Operations■ Finances■ Competition■ Leadership■ Institutional relationships■ Information systems; and■ Legal covenants.The most critical factors for ratings assessmentare the physicians, operations and finances. Theother aspects of the clinics discussed below contributeto strength in these key areas:PhysiciansThe most critical part of the rating process focuseson physicians, since they are the actual revenue producers.The composition, qualifications, quantity,and quality of the physician group play an importantpart in the analysis. In addition, physicianleadership’s philosophy and overall strategic vision,including managed care contracting and willingnessto forge alliances with alternative providers, is animportant rating factor. Although the analysis willbe slightly different for stand-alone group practicescompared with faculty practice plans, in general,Standard & Poor’s reviews the following factors:■ Number and specialty mix of physicians, includingadequacy of primary care physicians currentlyin the group, as well as recruitment plans andrelated funding;■ The nature of the local physician market (forexample, practice patterns, general availability ofphysicians, and the competitive position of thegroup in the market);■ General administrative factors including the credentialingprocess as well as the type of employmentcontract used—noncompete clause,compensation allocation consistent with managedcare incentives, salaries competitive with industrynorms by specialty and with local salaries;■ Top-10 revenue-producing physicians (includingpercent of total revenues generated, age, and tenurewith the group), the overall staff’s average age,board certification rates, as well as additions/deletionsto the staff in the past three years; andFor faculty practice plans, ages and tenure of thechairs of the top-five revenue-producing departments,vacancies in the major services (internalmedicine, surgery, obstetrics, family practice), andpercent of tenured faculty.OperationsThe history of the group practice, its structure, andits longevity are the starting points in Standard &Poor’s evaluation of the credit. The primary considerationis the likelihood that the group practice willremain viable for the life of the bonds.Consequently, Standard & Poor’s Public FinanceRatings group will rate debt issued only by not-forprofitgroup practices; the financial and operationalincentives of a proprietary group generally are notconsistent with the capital retention levels necessaryfor an investment-grade rating. Overall investmentgrade physician groups will demonstrate a competitivebusiness position, a sound balance sheet and atrack record of adequate cash flow and debt servicecoverage. Beyond understanding how and why thephysicians came to work together, Standard &Poor’s must assess the group’s ongoing strategy andits appeal to physicians in the future.Standard & Poor’s focuses primarily on multispecialtyclinics with 100 doctors or more. Amongthe operational aspects of the clinic Standard &Poor’s examines are:■ History of the group;■ Market position and breadth of patient draw;■ Nature of relationship with other medical facilities■ Economics of service area;■ Current physical assets and proposed futureneeds; and■ Debt structure including use of bond proceeds.CompetitionMulti-specialty group practices compete not onlywith other groups and solo practitioners, but oftenwith outpatient surgery centers, diagnostic centers,testing laboratories, and hospitals. A group’s abilityto attract and retain physicians and patients is paramountto the rating. As competition for patientsamong physicians and other providers intensifies,group practices must demonstrate their cost effectivenessand ability to attract patients and profitablemanaged care contracts. Multi-specialtygroups must demonstrate their ability to controlcosts and maintain profitable operations in thisenvironment.The key competitive factors reviewed include:■ Physician competitors for patients, includingother groups, solo practitioners, and hospitals;■ Nonphysician competitors seeking to providemedical services directly to patients, including170 Standard & Poor’s Public Finance Criteria 2007