CHICAGO - Standard & Poor's Corp. has expanded its definition of a multihospital system to accommodate anticipated changes in the health-care industry under national reforms, according to a comment in this week's CreditWeek Municipal.
Cynthia Keller, a director in the health-care ratings group at Standard & Poor's, said the definition will now include systems with one or more hospitals that aim to provide a broad spectrum of care, including inpatient, outpatient, and long-term services. The systems, which are typically regional in focus, may also offer insurance products and may own physician group practices, Keller said.
In the comment, Standard & Poor's said its old definition applied primarily to a system comprising at least three acute-care hospitals located in different regions.
The definition has become outdated in light of anticipated national health-care reforms, which are accelerating the national trend of health-care alignments designed to provide cost-effective regional networks, Keller said.
As a result of the definition revision, the number of health-care systems on the Standard & Poor's multi-hospital list has increased to 79 from 45. The list is divided between 18 national and 61 regional systems. Keller said there is little difference between the national and regional systems' financial strengths.
Success in regional markets will be essential to a system's overall profitability in the era of health-care reforms, Keller said. She also said that multistate providers must create or participate in local "mini-systems" to compete with strong regional systems and alliances.
Consolidation in the health-care industry and the desire to form networks to maintain profits have prompted many institutions to form untraditional affiliations and unique partnerships, Standard & Poor's said. For instance, hospitals are forming networks across religious lines, as exemplified in the recent merger of Barnes-Jewish Inc. and Christian Health Services in St. Louis, Standard & Poor's said.
In assessing the credit strength of multihospital systems, the rating agency said that mature systems generally are "better positioned" to adapt to changes in the industry, compared with recently formed systems that must integrate their operations and face other pressures.
In addition, systems that have successfully implemented managed-care strategies in states with heavy competition have an advantage if national reforms resemble the managed-care model proposed by President Clinton, Standard & Poor's said.
The rating agency also said that systems with effective management of physicians will be in the best position to contain expenses and maximize profit.
Keller said that multihospital systems tend to be more highly rated than single hospitals because larger networks enjoy such benefits as expertise, access to capital, pricing flexibility, and the use of centralized cash management.
The rating agency noted that AA or A ratings have been assigned to 89% of the national systems and 80% of the regional systems, compared to 52% for stand-alone hospitals.
