BOSTON -- Ongoing changes in the health care industry could affect ratings on more than $2 billion of debt issued by Boston area hospitals, according to a report in this week's edition of Standard & Poor's Corp.'s CreditWeek Municipal.

However, forthcoming mergers and increased cooperation between hospitals in the region could push ratings higher, the report said.

"I think it's important to realize that the entire industry is in a transition period now," said Martin D. Arrick, a director in Standard & Poor's health care division. "It is still unclear what effect the changes will have on the region."

The questions surrounding the industry are of great concern for the people in the Boston area, where four of the top ten employers are hospitals and a fifth is a health insurance company, the report said.

While the rest of the region's economy was slumping from 1989 through 1992, employment in health care grew to 14.7% from 11% of Boston's total city employment, the report said.

"This is one of the two largest employers in [Massachusetts]," said Philip N. Shapiro, managing director of Standard & Poor's new Boston office. "This industry may be more important here than anywhere else in the country."

Some of the nation's largest hospitals are located in the Boston area, including Beth Israel Hospital, the New England Medical Center, Massachusetts General Hospital, and Boston Children's Hospital.

Since 1991, the health care industry in Massachusetts has been changing because of the statewide deregulation of hospital fees. Prior to deregulation, about 26% of all state residents were covered under a health maintenance organization. That number has since risen to more than 33%.

The increased penetration of managed care has lowered the amount of time patients spend in hospitals, forcing the hospitals to increase primary care services.

"Other markets don't have the degree of managed care penetration," Arrick said. "That will be important as hospitals consider mergers."

'Merger' has been the region's watchword over the past few years. In July, the merger between New England Deaconess and New England Baptist Hospitals will be completed. In March, a merger was announced between Massachusetts General and Brigham & Women's Hospitals.

For the most part, Arrick said, mergers are a positive for both facilities.

"It kind of depends on the merger, though," he said. "The cost savings for the Massachusetts General and Brigham & Women's merger were significant, but you don't want to turn a single-headed monster into a double-headed monster."

The changes in the industry will make issuers and investors a little more conservative, Arrick said.

"If you sell bonds that have a 30-year life, you want to make sure that the institution will have another 30 years left," he said.

The report was the first installment of a new program instituted by Standard & Poor's that will evaluate the impact of health care reform on many of the nation's largest cities.

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