Two Midwest primary care hospitals are potential candidates for bond rating upgrades because they contract with managed care companies and affiliate with physician groups and other providers, Standard & Poor's Corp. said last week.

Although St. Luke's Hospital in Maumee, Ohio, and Palos Community Hospital in Palos Heights, Ill., have stable outlooks, Standard & Poor's said in last week's issue of Credit Week Municipal that the "continuation of operational and financial performance at historical levels could bring their debt ratings into the AA category."

Both hospitals' outstanding debt is currently rated A-plus.

Elie Radinsky, an associate director at Standard & Poor's, said that managed care companies have contracted with both hospitals based on their prime locations and low-cost positions. He said that the rating agency expects managed care contracting to grow at both hospitals.

"We expect volume on an inpatient and outpatient basis to increase at both institutions," Radinsky said.

Radinsky said that the trend toward efficient and less costly health care services has forced primary care hospitals to become a focal point of changes in the health care industry.

"Primary care hospitals, like primary care physicians, were once like a neglected arm. Their role is being better defined as the cost of care and geographic access to patients become more important factors," Radinsky said.

Standard & Poor's said that the bonds of other primary care hospitals that contract with managed care companies could be in line for upgrades.

Primary care hospitals typically have fewer than 350 beds and provide services such as general surgery and medicine, pediatrics, and outpatient services.

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