2010-07-29

28 Jul 2010 11:18 AM (EDT) Fitch Ratings-New York-28 July 2010: The 2010 median financial metrics for U.S. nonprofit hospitals and health care systems show a modest improvement in liquidity and a strong recovery in operating profitability and cash flow, according to Fitch Ratings' annual median ratios report issued today. The sector experienced improvements in several performance metrics compared to poorer financial profiles noted last year as the nonprofit hospital sector seems to be emerging from the financial crisis.

According to the report, operating cash flow improved due to meticulous expense management and revenue cycle improvement initiatives undertaken by providers' management teams. For the second year in a row, debt load (as measured by maximum annual debt service [MADS] as percentage of revenues) continued to diverge among investment grade rating levels, with medians now at 2.6%, 3.0%, and 3.5% for the 'BBB', 'A', and 'AA' rating categories. MADS coverage by operating EBITDA and EBITDA either remained stable or increased across all rating categories.

Noticeably absent again in 2010 is non-operating revenue, specifically investment income, which was a meager 14.5% of excess income. Excess margin declined slightly or remained flat for all rating categories, in contrast to operating profitability. EBIDTA margin and coverage by EBITDA reflected similar results. While EBITDA coverage may remain stable or improve slightly, the importance of core operations in covering debt service and the expected pressure on payment rates as the sector grapples with healthcare reform provide the basis for Fitch's negative outlook on the sector.

Fitch will host a teleconference tomorrow, Thursday, July 29, 2010 at 2 p.m. EDT to discuss highlights of the report. The discussion will be led by Jeff Schaub, Managing Director and members of the Nonprofit Healthcare group. The presentation will be followed by a question and answer session. To participate in the teleconference, interested parties should call 877-713-4667 (domestic) or 706-634-1958 (international) five minutes prior to the 2 p.m. EDT start time and give the conference ID# '89529714'.

A replay of the teleconference will be available starting two hours after the teleconference is completed and will be available until Aug. 29, 2010 close of business. To listen to the teleconference replay, participants should call (800)642-1687 (domestic) or (706) 645-9291 (international). The conference ID number for the replay is '89529714'. The special report, '2010 Median Ratios for Nonprofit Hospitals and Healthcare Systems', is now available at 'www.fitchratings.com'.