Fitch: For-Profit Hospital Sector Credit Outlook Remains Stable Despite Weak Operating Trends

NEW YORK--()--Fitch Ratings maintains a Stable Outlook on the for-profit hospital sector, despite weak trends in patient utilization persisting through the end of 2013, as discussed in a new report published today. The Fitch-rated group of for-profit hospital companies posted very weak organic growth in volumes in Q4'13, with admissions and adjusted admissions dropping 4.7% and 2.0%, respectively, on average, as a recovery in patient volumes took a step back after improving in mid-2013. Secular headwinds to the industry's organic growth remain intact early in 2014, and Fitch does not expect a strong recovery when the industry reports Q1'2014 results. Results for the quarter will reflect the industry's early experience under the health insurance expansion elements of the Affordable Care Act (ACA). On the surface, some recent developments have positive implications. This includes reports that the federal government met its open-enrollment target with 7.1 million individuals signing up for coverage in the public health insurance exchanges as of the March 31 deadline. However, the actual influence of the insurance expansion on hospital industry operating trends is far from certain, since the effects of narrow networks, employer dumping, and incremental utilization by the previously uninsured are still unknowns.

The effects of the ACA will take some time to fully materialize, and the industry's results are being supported by the integration of recent acquisitions in the meantime. The M&A environment remains quite active as management continues to prioritize use of cash for growth initiatives. Although the effect on ratings is highly situational, Fitch generally views this trend as having a positive influence on the sector's credit profile due to benefits to the operating profiles of the acquiring companies.

Most companies are operating with higher leverage in early 2014 versus the previous years' levels, largely due to the effects of funding of acquisitions. The negative influence on credit profiles is tempered, since recent transactions are expected to contribute to EBITDA and cash flow growth, offsetting the implications of higher cash interest expense. Otherwise, the liquidity profile of most companies in the hospital segment is solid. Companies have adequate liquidity or capital market access to address near-term debt maturities, and compliance with debt agreement financial maintenance covenants is not a concern.

The full report, 'Hospitals' Credit Diagnosis: Consolidation Supports Growth in a Weak Organic Operating Environment' is available at www.fitchratings.com. The report provides a summary of the quarterly operating performance and credit metrics of companies in the for-profit hospital sector, including detailed debt and organizational structure charts.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:
'High-Yield Healthcare Checkup' Apr. 4, 2014;
'2014 Outlook: U.S. Healthcare', Nov. 25, 2013;
'U.S. Leveraged Finance Spotlight Series - HCA Holdings, Inc.', Nov. 7, 2013;
'Margin Preservation Strategies - Different Angles (Credit Implications for U.S. Hospitals and Health Insurers)', Oct. 1, 2013;
'The Affordable Care Act and Healthcare Providers: Assessing the Potential Impact', May 1, 2013;
'Corporate Rating Methodology', Aug. 5, 2013.

Applicable Criteria and Related Research: Hospitals Credit Diagnosis (Consolidation Supports Growth in a Weak Organic Operating Environment)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=745816

2014 Outlook: U.S. Healthcare -- Secular Challenges Require a Compelling Value Proposition
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724141
U.S. Leveraged Finance Spotlight Series - HCA Holdings, Inc.
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721356
The Affordable Care Act and Healthcare Providers (Assessing the Potential Impact)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=706654
High-Yield Healthcare Checkup: Comprehensive Analysis of High-Yield U.S. Healthcare Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=700377
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
Margin Preservation Strategies -- Different Angles (Credit Implications for U.S. Hospitals and Health Insurers)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718975
High-Yield Healthcare Checkup: Comprehensive Analysis of High-Yield U.S. Healthcare Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=736356

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Contacts

Fitch Ratings
Megan Neuburger, +1-212-908-0501
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Megan Neuburger, +1-212-908-0501
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com