Reform may hurt academic medical centers' debt ratings.

CHICAGO -- Academic medical centers' outstanding debt could face negative rating pressures due to ongoing health care reforms that emphasize cost control and outpatient care, according to Standard & Poor's Corp.

In a telephone press conference yesterday, David Peknay, a director at Standard & Poor's, said that maintaining expensive innovative research and specialized care while remaining competitive may be difficult for many academic medical centers.

Academic medical centers typically comprise universities with a medical school, an advanced-care hospital, and clinics, according to the rating agency. The centers often provide a wide range of services, often to the uninsured.

Most academic medical center debt is rated in the A and AA categories -- higher than that of most community and non-research hospitals, Standard & Poor's said in a recent CreditWeek Municipal report. However, the rating agency said, some characteristics, including research and specialty services, that have contributed to higher ratings in the past could become weaknesses in today's health care market.

As managed care providers and other insurers seek out low-cost health care for their patient pools, academic medical centers will have to reduce costs to survive, the rating agency said.

But Standard & Poor's said that the medical centers have structures and practice patterns that "will make it difficult to adapt to a managed care environment."'

The use of primary care doctors, who are charged with screening patients in a managed care setting, does not mesh well with the departmentalized structure of academic medical centers, the rating agency said.

But Kenneth Rodgers, a director at Standard & Poor's, said that many academic medical centers have implemented various strategies to enhance their market position. The strategies include increasing patient referrals, acquiring physician practices, and joining forces with other health care institutions through mergers, joint ventures, or affiliations.

A strong management team that can navigate an academic medical center through changes in the health care environment is essential, Rodgers added.

Universal health care coverage, the implementation of which is being considered at the federal level, could be a double-edged sword for academic medical centers, the rating agency said.

"If enacted [by Congress], universal coverage could provide some relief; however, it also introduces competition from other providers," Standard & Poor's said.

Jennifer Neel, an associate director at Standard & Poor's, noted that a university's credit rating can be helped or hindered depending on the health of an affiliated hospital, a kind of "domino effect."

"These entities enjoy a symbiotic relationship," Neel said.

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