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

Education And Non-Traditional Not-For-Profitsaccount when considering institutional ratings. Selfsupportingprojects are generally viewed morefavorably than projects, which produce no additionalrevenues, all other factors being equal.Rating Stand-Alone Medical SchoolsFrom a rating perspective, since most U.S. medicalschools are affiliated with a university or hospitalor both, it is impossible to evaluate the medical collegewithout considering the associateduniversity/hospital operation. Partnerships and affiliationswith other health care entities is still animportant part of the rating analysis, but only oneof many factors.Most ratings associated with medical colleges arerefined by their relationship with a related universityand/or hospital. In the case of publicly supportedmedical colleges, the rating also incorporates anevaluation of state support. However, Standard &Poor’s does rate free-standing medical schools notaffiliated with a university or a hospital.The rating process begins with evaluation ofdemand and a financial analysis similar to that usedwhen assessing other higher education institutions.The analysis is tailored to incorporate special characteristicsof medical schools, such as limited classsize, high tuition levels, state reimbursement programs,research programs, affiliation agreements,and revenues from faculty practice plans.State-Supported Medical SchoolsState support adds another twist to the evaluation ofmedical schools. Standard & Poor’s rates a fewcombined hospital/medical school entities thatreceive significant state appropriations. While studentdemand, hospital utilization rates, and servicearea characteristics are important rating factors forschools of medicine that also run teaching hospitals,strength of state support can be a key credit factor.Independent Medical SchoolsFree-standing medical schools—those without hospitalfacilities, offer an opportunity to assess a medicalcollege unaffected by the credit characteristicsof affiliated institutions or hospital revenues. Thesecolleges depend more on student demand andtuition, than other medical schools, and must supportthemselves without the benefit of state moneyor a larger university or hospital. However, theymay benefit from affiliated income from partnershipswith adjacent or associated hospitals, and theamount of reimbursement for residents and facultycan be significant. In addition, because their facultypractice in associated clinics and hospitals, they arestill subject to health care industry risk. Because oftheir limited wherewithal and sometimes their weakfinancial performance, historical ratings on freestandingmedical schools generally have not beenrated higher than the ‘A’ category.Demand AnalysisDemand analysis of medical schools mirrors thatused in evaluating colleges and universities.Standard & Poor’s focuses on enrollment trends,application, acceptance and matriculation results,student quality, and competition from other programs.Medical schools often offer more than justmedical degrees, and some medical schools offerboth allopathic and osteopathic programs in medicine.Larger, more comprehensive programs providediversity, particularly since health science academicprograms are known for their cyclicality. However,historical demand for medical school admission hasfar exceeded the available supply. This relationshipholds, despite several years of a national decline inapplications to medical schools. In general, allopathicschools of medicine tend to be more competitivein admissions than osteopathic schools of medicine,however, there are more standalone osteopathicschools of medicine rated by Standard & Poor’sthan allopathic. More of the nation’s allopathicmedical schools are associated with large, researchuniversities. Osteopathic medicine schools, with afew exceptions tied to public, research universities,tend to be standalone institutions.Since there are so few medical school spaces, students’choices are limited, and matriculation ratesare often higher than for other unrelated professionalprograms such as law and business. The flexibilityafforded by such selective admissions isparticularly significant for medical schools that cannotrely on enrollment in other programs to offsetperiods of falling demand. While medical collegesremain vulnerable to industry changes and changingattitudes regarding the medical profession,Standard & Poor’s expects demand for medicaleducation to remain strong, and in fact, recenttrends indicate a positive movement upward inmedical school applications.Financial AnalysisStandard & Poor’s financial analysis of medical collegesalso parallels the approach used for otherhigher education institutions, centering on:■ Revenue and expense composition;■ Annual financial operating results;■ Liquidity and endowment; and■ Debt load.Standard & Poor’s uses the same financial ratiosand indicators used in the assessment of collegesand universities. The chief focus on the balancesheet is liquidity represented by various degrees ofrestrictions on equity. Many medical schools builttheir financial reserves more through decades of190 Standard & Poor’s Public Finance Criteria 2007