Health-care reforms being considered at the national level will probably impede hospitals' ability to the tax-exempt markets, Standard & Poor's Corp. said in yesterday's CreditWeek Municipal.
The rating agency noted that tax-exempt bonds are one of the key ways hospitals raise money to fund capital expenses and depend on adequate cash flows.
"Under any likely policy outcome, the Clinton administration's effort at health-care reform, sooner or later, will reduce financial flows into the health-care system," Standard & Poor's said.
A plan based on managed competition, which the Clinton administration has said it most favors, will reduce revenues for hospitals by better managing patient flows into hospitals, the report said.
"Reduced utilization and efficient health service delivery for remaining patients ultimately will reduce revenues." Standard & Poor's said.
Another option, revenue caps, would by definition mean lower revenues for hospitals.
Standard & Poor's said it believes the most probable reform would be a hybrid approach combining both methods. The ultimate effect of that would be two-fold: reduced incomes that cut cash flows available for non-debt capital formation, and an erosion in credit quality as debt service coverage and fund balances decline.
Reduced cash flows would also decrease reinvestment opportunities. The agency said it doubts bond insurance would remain available at its current levels as credit quality erodes.