annual sector outlook for not-for-profit healthcare for...

OUTLOOK

U.S. PUBLIC FINANCEJANUARY 2010

Table of Contents:

Annual Sector Outlook for Not-For-Profit Healthcare for 2010 Negative Outlook Continues Due to Sluggish Economy and Government Budget Deficits

Moody’s outlook for the U.S. Not-for-Profit Healthcare sector remains negative. This outlook expresses Moody’s expectations for the fundamental credit conditions in the industry over the next 12 to 18 months and does not speak to the expected balance of rating changes during this timeframe.

SUMMARY OPINION 1 WEAK ECONOMY, SLUGGISH RECOVERY AND GOVERNMENT FISCAL PRESSURE SUPPORTING NEGATIVE OUTLOOK 2 NEGATIVE FACTORS 3 POSITIVE FACTORS 11 APPENDIX 15 RELATED RESEARCH 30

Analyst Contacts:

Summary Opinion

Moody’s is maintaining its negative outlook for the U.S. Not-For-Profit Healthcare industry. The outlook was initially revised to negative from stable in November 2008 based on disruptions in the credit and liquidity markets, as well as declines in patient volumes and financial performance driven by a weakening economy. Since March 2009, equity and credit markets have partially recovered, but the lingering effects of the weakened economy remain and recovery of not-for-profit hospitals will likely be delayed until well after the broad economy heals. High unemployment, consumer pessimism, weakened employer insurance coverage, and unprecedented government budget deficits at the federal and state levels are now dominant factors driving our negative outlook. These economic effects constitute a common thread underlying many pressures on not-for-profit hospitals, including sluggish patient volumes, uncertain government and private payer reimbursement rates, and the prospect of second and third rounds of increasingly difficult cuts in operating expenses.

NEW YORK 1.212.553.1653

Lisa Martin 212.553.1423 Senior Vice President [email protected] Lisa Goldstein 212.553.4431 Senior Vice President - Team Leader [email protected] John C. Nelson 212.553.4096 Team Managing Director [email protected]

CHICAGO 1.212.553.1653 Many not-for-profit hospitals are more dependent on state and federal budget decisions than for-profit hospitals because they are larger proportionate providers of Medicare, Medicaid and charity care services, and they are subject to more scrutiny due to their tax-exempt status. Federal stimulus subsidies buffered not-for-profit hospitals to some degree in 2009, but if this relief ends in late 2010, we expect operating performance at many not-for-profit hospitals to come under even greater pressure.

Mark Pascaris 312.706.9963 Vice President-Senior Analyst [email protected]

Federal healthcare reform presents one of the largest medium-term uncertainties facing the sector. Although the likelihood of a comprehensive healthcare reform bill is clearly reduced, projections of deep multi-year federal budget deficits strongly suggest Medicare spending will nevertheless need to be curtailed. As the federal government pushes providers harder for more spending efficiencies, not-for-profit hospitals will remain at risk for significant payment reductions beyond 2010.

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2 JANUARY 2010 OUTLOOK: ANNUAL SECTOR OUTLOOK FOR NOT-FOR-PROFIT HEALTHCARE FOR 2010

Over the next 12-18 months, we believe the relative abilities of different not-for-profit hospital management and governance teams will become more apparent as they face one of the toughest environments in decades. In 2009, there was a wide variation among not-for-profit hospital operating performance with some health systems responding quickly by reducing costs significantly while others struggled. We expect to continue to see uneven effects of the weak economy on not-for-profit hospitals in different regions of the nation, depending on management quality, size, and payer mix. As a result, we expect the gap between high and low performers to widen.

Negative factors supporting the outlook include:

» Sluggish patient volumes as high unemployment and reductions in employer healthcare coverage drive patients to defer elective procedures

» Pressure on all hospital revenue streams, including Medicare (from strategies to recoup presumed hospital overpayments), Medicaid (as states struggle to close budget gaps), and commercial payers (as they experience financial challenges)

» Greater difficulty cutting additional costs following significant expense reductions last year and due to anticipated increases in pension, interest, bad debt and physician-related expenses

» Debt structure and liquidity risks, driven by hospitals’ higher bank exposure and a less than full recovery of investment losses

» High capital needs after a temporary slowdown last year

» The conclusion of the federal stimulus program in December 2010

Positive factors include:

» For some hospitals, strong management capabilities, enabling the quick response to operating and liquidity challenges and solid operating performance last year

» Benefits from a partial recovery of the equity and debt markets, providing liquidity relief and a window for restructuring debt, with a greater focus on liquidity and debt issues

» Anticipated increase in merger and acquisition activity, which we believe is a long-term positive on balance for the industry

Weak Economy, Sluggish Recovery and Government Fiscal Pressure Supporting Negative Outlook

The health of the economy has a direct impact on all of the factors discussed in this report. Even with some economic recovery, we believe there could be a lag on the healthcare sector as the full effect of the downturn is still being felt by some hospitals. Additionally, the expiration later this year of temporary federal assistance to states and the unemployed could prolong the rate and pace of recovery.

As published in January, 2010 in Moody’s Global Macro-Risk Scenarios 2010-2011, Moody’s continues to believe that a sluggish recovery is the most likely global macro-economic scenario. In other words, we believe that the global economy is not going to rebound strongly in 2010 and 2011, but rather return to trend growth rates, with persistent unemployment and budget deficits. This is in line with the “hook”-shaped recovery scenario which Moody’s introduced in May 2009 and which

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stipulated that the crisis will leave lasting scars, with many economies not returning to their previous output paths.

The primary effects of a weaker economy on hospitals include:

» Lower patient volumes as patients defer elective healthcare services

» Rising charity care and bad debt expense due to a high level of unemployment and the loss of - or reduction in - health insurance

» Budget pressure on federal and state levels forcing intensifying reviews of Medicare and Medicaid reimbursement rates

» Unfavorable changes in payer mix away from commercial due to rising unemployment and the expiration of COBRA benefits

» Financial pressures and lower membership at healthcare insurers, contributing to lower commercial rate increases for hospitals

While broad economic factors are likely to affect most hospitals in the industry, not-for-profit hospitals may face greater challenges than for-profit hospital companies, primarily because on average not-for-profit hospitals have greater reliance on governmental (Medicare and Medicaid) funding and are at greater risk to increasing charity care and bad debt. For-profit hospital companies have larger revenue bases and more geographic diversity than many not-for-profit hospitals and health systems, which reduces the impact of economic forces and state Medicaid funding cuts in any one state. Additionally, for-profit hospital companies have maintained generally consistent access to capital during the recent period of market stress.

Negative Factors

Volume Growth Likely to Lag Economic Recovery

Following sudden volume declines in the fall of 2008, volume trends somewhat recovered throughout 2009, the degree of which depends on the region and competitive environment. However, we believe several positive factors that helped to temporarily support higher volumes in 2009 may not continue in 2010. Therefore, we believe the lagging effects of a sluggish economy will continue to drive underlying pressures on patient volumes.

Although patient volumes appeared to rebound in some regions of the country during 2009, we believe volume trends are tenuous and underlying pressures will become more apparent throughout 2010. The weaker economy has resulted in higher insurance co-pays and deductibles for employees with employer-provided health insurance, or the loss of healthcare insurance for those affected by layoffs or employers dropping coverage. As a result, demand for discretionary healthcare has declined, particularly for surgeries, as patients defer elective or non-emergent procedures. Additionally, growth in observation cases continues to be a trend, replacing more profitable admissions cases and directly affecting hospital revenue. Growth in observation cases is due to stricter classification of patients by Medicare and commercial payers as well as hospitals adjusting patient classifications in anticipation of RAC audits. In some regions, increasing competition from hospitals and physicians are affecting volumes for individual hospitals.

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We believe several factors contributed to buffering volume issues in 2009, some of which may be temporary or create a lag effect. Federal subsidies have increased the use of COBRA and will continue to partially support volumes, at least until the subsidies expire later in 2010. COBRA (acronym for the 1985 Consolidated Omnibus Budget Reconciliation Act) requires certain companies to continue insurance for former employees for up to 18 months. With the cost of healthcare rising and becoming unaffordable even with COBRA insurance, the federal economic stimulus plan allocated $25 billion to subsidize the cost of insurance for an initial nine months starting in March 2009. In December, Congress extended the program for people laid off through February 2010 and the period for receiving the subsidy extended another six months. Additionally, healthcare insurers report anecdotally that consumers, worried about layoffs, have used healthcare services more while they have coverage.

Longer-term, upon a full economic recovery, there are positive factors that could support higher patient volumes. Long-term demand for hospitalization will rise from an aging population. And in some regions, hospital consolidation from the past decade and further mergers in the next decade will support volume growth at remaining health systems. Some hospitals have experienced growing volumes, even during the recession, because of a decade of industry consolidation and hospital closures, which have reduced excess capacity and concentrated healthcare services among a few large systems in certain regions.

Hospitals Face Growing Pressures on All Revenue Sources

We anticipate hospitals will find it increasingly difficult to grow revenue in pace with expense growth, as virtually all revenue sources are under pressure (see Figure 1). Medicare payment rates, which affect the largest source of revenue for hospitals, will be pressured by RAC audits as well as, later in the year, possible adjustments to payment increases for presumed overpayments to hospitals by Medicare. Beyond 2010 and regardless of healthcare reform, Medicare rates will be inevitably pressured as the federal budget issues continue and the insolvency of Medicare looms. State budgets remain stressed, affecting Medicaid rates. Finally, healthcare insurers continue to gain leverage over hospitals from further consolidation and are under financial pressure from the affects of the economy on membership and medical loss ratios, likely resulting in lower reimbursement rates to hospitals.

FIGURE 1

Major Hospital Revenue Sources Under Pressure

HOSPITAL REVENUE SOURCE

% GROSS REVENUE1

1 FACTORS DRIVING LOWER REIMBURSEMENT FROM PAYER

Medicare 42% RAC reviews, behavioral coding adjustments, spending trends, Medicare trust insolvency

Medicaid 11% State budget gaps, expiration of federal stimulus

Private insurance 45% Industry consolidation, membership losses, financial challenges

1 Moody's Not-for-Profit Healthcare Medians for Fiscal Year 2008

Medicare Payment Rates to be Affected by Behavioral Coding Adjustments and RAC Reviews

Although Medicare market basket updates and payment rates have been relatively stable the last several years, hospital Medicare payments have been affected by adjustments to reflect presumed “upcoding” by hospitals and RAC reviews. We expect that both issues will potentially become greater “offsets” to Medicare rates over the next 12 to 18 months. Longer-term, and regardless of the effects of healthcare reform, we believe the industry is likely to face cuts in Medicare because of rising Medicare costs as a

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percent of the federal budget and general pressures on the federal budget. As a result, some healthcare systems are budgeting little or no increase in Medicare rates for the next several years while some providers are projecting overall rate reductions.

Medicare comprises an average 42% of hospital gross revenue (based on Moody’s medians for fiscal year 2008), which leaves hospitals highly vulnerable to changes in Medicare reimbursement. The last several years through federal fiscal year (FFY) 2009, hospital payment rates were equivalent to the full market basket inflationary update (see Figure 2) at around 3.5%; for FFY 2010, the payment rate fell to 2.1%. However, beginning in FFY 2008, Medicare created the severity-adjusted diagnosis related groups (MS-DRGs) to expand the number of DRGs to more accurately capture the severity of patient cases. To prevent changes in coding patterns that may occur with the expanding MS-DRGs, the Centers for Medicare and Medicaid Services (CMS) implemented a behavioral coding adjustment to offset any upcoding (or rise in the Medicare case mix index when the underlying cases have not changed in severity) that may occur. Hospitals in 2008 and 2009 experienced payment reductions related to the coding adjustments of 0.6% and 0.9%, respectively, bringing the actual payment received to 2.7% in 2009. CMS held off from implementing a behavioral code adjustment in FFY 2010 until further study of the effects of potential upcoding is completed.

For FFY 2011, starting October 1, 2010, the Medicare Payment Advisory Commission (MedPac) recently recommended that Congress give hospitals a payment update equal to the market basket index change, which is 2.4% and lower than historical levels. Additionally, MedPac recommended coding reductions of up to 2.0% for 2011, 2012 and 2013. This proposed coding reduction would reduce the payment update to 0.4%. CMS will issue a final rule in the spring.

FIGURE 2

Hospital Inpatient Prospective Rates

0.00.5

1.01.5

2.02.5

3.03.5

4.0

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09

% In

crea

se

Market Basket Update Payment Increase

Source: Centers for Medicare and Medicaid Services

In addition to lower Medicare payment rates and proposed coding reductions that could start October 1, 2010, we expect hospitals will possibly face more repayments back to Medicare as a result of the expansion of the Recovery Audit Contractors (RAC) reviews. The RAC reviews look for Medicare overpayments to hospitals and require immediate repayment to Medicare. As these reviews expand, many hospitals view these repayments as a form of ongoing reductions in Medicare payments, rather than one-time or non-recurring repayments. Florida, New York and California were the three pilot states for the RAC reviews, which are now being rolled out nationally this year. Additionally, the audits will be advanced to include reviews of medical necessity. Medicaid may follow suit, with its own version of RAC audits.

JANUARY 2010 OUTLOOK: ANNUAL SECTOR OUTLOOK FOR NOT-FOR-PROFIT HEALTHCARE FOR 2010

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Longer-term, and beyond the scope of this outlook, we believe hospitals could face cuts in Medicare reimbursement, regardless of the implications of healthcare reform, due to federal budget pressures, rising Medicare spending as a percent of the federal budget, and rising healthcare costs. According to a recent CMS report, overall healthcare spending slowed to 4.4% in 2008 from 6.0% in the prior year. However, the slowdown in healthcare spending is likely related to the recession, rather than a meaningful slowdown in healthcare costs. The recession (the effects of which are included in the measure of healthcare spending) has resulted in lower spending for Medicaid as states slowed spending to control budgets, and the lower spending by employers through the elimination or reduction of healthcare benefits and jobs. Total healthcare spending as a percent of gross domestic product (GDP) continues to rise, increasing to 16.2% in 2008 from 15.6% in 2004. Likewise, Medicare as a percent of GDP continues to increase (see Figure 3).

FIGURE 3

Medicare Spending Continues to Grow

0

100

200

300

400

500

2004 2005 2006 2007 2008

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%

Medicare outlay ($ billions) Medicare spending as % of GDP

Source: Centers for Medicare and Medicaid Services; latest available data through 2008

Medicaid Rates at Risk as States Struggle to Balance Budgets and Federal Stimulus Funding Is Set to Expire

Like hospital volume trends, we believe 2009 hospital operating performance would have been worse without the temporary additional federal relief provided to states for Medicaid funding. Over the next 12 to 18 months, depending on the pace of economic recovery, states may continue to face budget gaps, which already have resulted in cuts to Medicaid funding for several states. The end of funds provided to states through the current federal fiscal stimulus in December 2010 also may challenge state budget balances.

As part of the federal stimulus program, the federal government provided stabilization funds to states along with a temporary increase in the Medicaid cost-sharing ratio (the Federal Medical Assistance Percentage, or FMAP), which provided fiscal relief to states and helped them to close budget gaps. In 2009, hospitals benefited from these funds as many states avoided further cuts to Medicaid programs. However, these additional funds are scheduled to end after December 2010 and it is unclear at this point whether Congress will extend the supplemental Medicaid monies beyond this date.

Several factors indicate weak prospects of near-term recovery for the state sector. State governments have been forced to make substantial budget adjustments. The poorly performing economy continues to depress state revenues, so despite unprecedented budget cuts, some states forecasted gaps for fiscal 2010 (see Figure 4), and the fiscal 2011 budgets currently being proposed in many states reflect lower spending than seen in recent years. Since some state tax receipts, including personal income and sales taxes, will lag any economic recovery, budget gaps will likely persist for some time after the economic recovery begins. Additionally, while the federal fiscal stimulus plan has provided states with needed near-term budget relief, states may need to rebalance their budgets after the federal moneys run out. Even when that rebound begins, continued revenue volatility, possible additional budget strain


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following the end of the federal stimulus funds and uncertainty regarding the timing and strength of economic recovery continue to challenge state credit quality.

FIGURE 4

Recovery Act Reduces State Budget Gaps, But Large Deficits Remain

-31 -68 -38 -2

-79

-125-142

-118

-250

-200

-150

-100

-50

0

FY2009 FY2010 FY2011 FY2012Bu

dget

sho

rtfa

lls in

$bi

llion

s

Budget gaps offset by Recovery Act Remaining budget gaps after Recovery Act

Source: Center for Budget and Policy Priorities

Financial Pressures at Healthcare Insurers to Drive Lower Commercial Price Increases

We expect hospitals to continue to see lower rate increases from commercial healthcare insurers, continuing a several-year trend. Payers continue to consolidate with both for-profit as well as not-for-profit healthcare insurers, providing greater negotiating leverage for the payer. Typical of most markets, the larger payers pay the lowest rates to hospitals and consolidation results in patients shifting into larger plans that are less profitable to the hospital. Rate increases to hospitals from commercial payers have declined anecdotally to the low-mid single digit range, depending on the market. Although merger and acquisition activity has been limited over the last year, financial challenges faced by smaller healthcare insurers and a final resolution of healthcare reform legislation could lead to greater consolidation in the industry (see Figure 5).

Moody’s has a negative outlook for the U.S. healthcare insurance sector because the uncertain direction of healthcare reform and a sluggish economy continue to pressure medical trend and membership growth. As increased unemployment and the elimination of healthcare insurance by employers drives declines in commercial membership and pressures insurers’ net profits, we anticipate hospitals will face tougher negotiation tactics with payers and possibly more threats of contract termination, which can be disruptive to patient volumes. In addition, as a result of the decline in the number of insured, hospitals are experiencing a shift in payer mix to higher self pay, Medicaid, and charity care.

Finally, if a form of healthcare reform passes, while some provisions may not be implemented for several years, there could be changes in strategies and operations in the near-term if insurers choose to abandon sectors they see as being ultimately unprofitable (such as the individual insurance segment and Medicare Advantage). As a result, hospitals could see a shift in payer mix, either between commercial payers or from commercial to Medicare or Medicaid.


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FIGURE 5

Selective Major Mergers and Acquisitions 2005 to present

COMPANY COMPANY ACQUIRED

AMERIGROUP Memphis Managed Care Corp

Centene - New Jersey book

CIGNA Sagamore

Great-West Healthcare

Coventry Mutual of Omaha - group health

Vista Healthplans

Preferred Health Systems

HIP ConnectiCare

GHI

Perfect Health

HCSC BCBS Oklahoma

Humana CarePlus

CHA HMO

United Medicare Las Vegas

OSF

Metcare Health Plans

UnitedHealth Group PacifiCare Health Systems

Neighborhood Health Partnership

John Deere Health Care

IBA Health Plans

PHP SW Michigan - Medicaid

Arnett Health Plans

Sierra Health Services

Unison

Health Net - Northeast

WellPoint WellChoice

Expenses Increasingly Difficult to Control After Initial Cuts

We believe hospitals may find it difficult to further control expenses in the next 12 to 18 months on top of the significant reductions many hospitals have already made. Additionally, several expense areas will likely prove increasingly challenging.

In response to the sudden volume and liquidity pressures in the fall of 2008, hospitals responded to varying degrees with large cost reductions, in some cases in multiple rounds. While these efforts were successful in stemming operating losses, we believe it will become more challenging to achieve further cost reductions after the “low-hanging fruit” has been identified. Additionally, with revenue growth slowing, we anticipate hospitals will increase spending in certain areas to support growth strategies such as physician employment or alignment.

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Finally, while hospitals make progress on containing costs in areas such as wages and supplies, other expense areas are likely to see increased growth rates in the short-term. The areas of anticipated higher expense growth include:

» Pension expense due to the increase in the unfunded pension liability following losses in asset values

» Interest expense, reflecting the generally higher cost of fixed rate bonds

» Bad debt expense, driven by the effects of the economy

» Physician-related costs resulting from investment in physician alignment strategies

Debt Structure and Liquidity Risks Remain Elevated

Even with a moderate easing of the debt market and the partial return of the equity market, we believe hospitals will continue to face risks related to their debt structures, significantly with respect to the “bubble” of renewals of bank letters of credit and standby bond purchase agreements in the next 12-18 months. Additionally, liquidity needs are likely to remain high relative to levels prior to the credit crisis due to increased capital spending, pension funding needs and potential swap collateral requirements. Meanwhile investments have not recouped all of their prior losses and hospitals are operating with thinner balance sheets.

Although some hospitals have taken advantage of recent improvement in the debt markets and restructured their debt, many are still facing significant risks from their debt structures. With the collapse of the auction rate market, many hospitals replaced auction rate debt with variable rate demand bonds (VRDBs), which introduced “put” risk in the event the supporting bank agreements are not renewed or are unexpectedly accelerated. As the markets have loosened recently, some hospitals have quickly moved to replace VRDBs with fixed rate debt. However, many are still exposed to the risks of VRDBs and have not refinanced because of the correspondingly low rates they still enjoy or because of related swaps that would require a payment to terminate.

Over the next two years, almost $19 billion in letters of credit renew, a huge concentration of exposure to refinancing risk as hospitals compete for scarce capital and may face non-renewal (see Figure 6). This bubble could make it difficult for lower-rated hospitals, in particular, to compete for bank commitments or compete for investor interest if they are forced to enter the fixed rate market. Additionally, as bank capital has become scarcer, we expect hospitals will continue to face higher costs to secure bank support and stricter terms. Covenants and terms within those documents have become more restrictive, allowing the bank more opportunities to terminate liquidity facilities and demand rapid repayment for any draws.

We believe hospitals will face multiple demands on liquidity over the next 12-18 months. Since early 2009, investment portfolios of most hospitals have recovered some of the 20-30% losses experienced in 2008, but balance sheets remain weakened and the markets remain more unpredictable than in the past. Changes in rates have resulted in previously high levels of swap collateral returning to hospitals. However, the risks of swaps remain (as evidenced by very large collateral postings in late 2008) and, although some hospitals have refinanced variable rate bonds with fixed rate bonds, they have chosen to leave “orphan” swaps outstanding to avoid large termination payments leaving them still exposed to potential future collateral posting requirements. Pension funding requirements have varied given the

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volatility of the stock market and depending on asset allocations, but many hospitals are forecasting higher pension expense and funding needs in the next year. Despite the recent strong performance of the equity market since March 2009, asset losses from earlier periods continue to affect plan asset valuations. Finally, as some hospitals have diversified into alternative types of assets, we believe there is increased risk of reduced liquidity and/or capital calls on funding commitments.

FIGURE 6

LOC Expirations/Renewals 2004 to 2015

1,130 1,842 1,520 1,141 1,779 1,951

4,372

14,419

7,1105,695

827 2530

2,0004,0006,0008,000

10,00012,00014,00016,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

($ M

illio

ns)

Source: Citigroup based on their review of Thomson Reuters SDC data; sample of 1,079 healthcare VRDO programs backed by a Letter of Credit as of 10/05/2009. For illustration purposes only

Capital Needs Remain High with Spending Likely to Resume After a Temporary Slowdown

We believe that capital needs in the healthcare industry remain high, which will likely drive a resumption of spending following the recent slowdown due to tighter access to capital and strategies to preserve liquidity. The industry faces capital needs that are not as easily delayed as those in other industries, such as higher education.

Last year hospitals delayed or reevaluated capital projects, and in some cases postponed related debt borrowings, in order to preserve liquidity and because of the more restricted and expensive access to capital. However, we believe hospitals will need to address capital needs in order to remain competitive and keep up with changes in the industry. Major drivers of increasing capital include increasing competition from physicians and hospitals, growth strategies, quality initiatives, aging facilities, capacity constraints and information technology needs. Federal support of information technology initiatives, in the form of $34 billion in subsidies to hospitals and office-based physicians, will help fund IT spending but IT needs far surpass those subsidies and, in the long-term, hospitals that do not implement adequate electronic medical records quickly enough may face reduced Medicare reimbursement.

Beyond the initial risk of financing capital programs, more large projects being completed in the next several years will require hospitals to absorb startup costs for those projects. Numerous providers have issued debt for patient towers, replacement hospitals and new hospitals that will be finished over the next two years. We expect many to face operational challenges as additional staffing is needed and, in many cases, physicians will need to relocate their practices to new facilities.


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Implications of Healthcare Reform While both the House and Senate passed their respective versions of healthcare reform in late 2009, successful passage of a combined bill was never a certainty as the two Congressional chambers had to reconcile the not-insignificant differences between the bills. Healthcare reform is now a bigger question mark following the special election in Massachusetts to fill the U.S. Senate seat formerly held by Edward Kennedy. As a result of the election, Democrats in the Senate will no longer have a filibuster-proof "super majority" of 60 Senators. While Democrats on Capitol Hill continue to debate their future options, it’s useful to review potential implications for not-for-profit hospitals if something reasonably similar to either the Senate or House version were to be passed.

First, the most significant positive for not-for-profit hospitals would be a potentially material reduction in the number of uninsured in the U.S., leading to reduced charity care and bad debt expense for hospitals. This would be accomplished by (a) provisions to prohibit insurers from excluding individuals based on pre-existing conditions, (b) individual mandates to acquire insurance, and (c) increased Medicaid eligibility.

The potential negatives of healthcare reform for not-for-hospitals could be significant as well, and, are largely a function of the growing need for the federal government to restrain spending in Medicare. The drive for Medicare efficiencies and reduced reimbursement rates would, over time, likely exceed the benefits of more insurance coverage for many hospitals. Healthcare reform could affect all major industry participants and revenue streams, leading to material risk and uncertainty. Notably, reform could include (a) significant Medicare reimbursement cuts of $150 billion or more, plus reductions in disproportionate share funding, (b) efficiency provisions that could lead to Medicare reimbursement cuts for high-cost hospitals in high-cost markets, and (c) higher supply costs from medical device manufacturers, drug makers, etc. who would attempt to pass on increased taxes/fees on to hospital customers. Also, we would expect negotiations with commercial and managed care payers to become more difficult as the insurers face increased scrutiny and regulations.

Positive Factors

Strong Management Teams Respond Well to Challenges, Driving Good Performance for Some

We believe the credit crisis and industry challenges have highlighted the strongest management and governance teams in the industry, who have led their organizations to improve financial performance in a challenging year. These are the teams that implemented effective strategies and are representative of those that are likely to successfully respond to the challenges over the next 12 to 18 months. However, operating performance in the healthcare industry is very uneven and the gap between the strongest and weakest hospitals continues to widen with some hospitals experiencing large operating losses or declines and others reporting very strong and improved margins in 2009 and anticipated in 2010.

Hospitals implemented a number of strategies to respond to the credit crisis and industry challenges. Operating strategies include reducing or closing unprofitable services, restructuring the pension plan to a defined contribution from a defined benefit plan, implementing workforce reductions, eliminating bonuses and salary increases, and renegotiating supplies contracts. Revenue cycle strategies include

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improving patient registration and payment processing, qualification of state and federal payment programs and coding. Nursing shortages eased, at least temporarily, as the recession has resulted in more nurses remaining in the workforce or delaying retirement. Strategies to increase liquidity and reduce debt structure risks are discussed below.

We expect the strongest management teams will continue to demonstrate better financial and capital planning capabilities and discipline. Many organizations are now integrating their strategic, financial and capital planning. Some are more skilled and experienced in their planning with more information technology tools to assist with forecasting and more rigorous capital allocation models. A number of the more successful organizations developed several levels of contingency plans to “keep on the shelf” if needed. Regarding capital, in order to preserve liquidity, some healthcare systems delayed major projects that were not started, halted projects already started, postponed new equipment purchases and/or re-prioritized projects.

Improved Capital Markets Provide Immediate Liquidity Relief and Window for Debt Restructuring

Although liquidity risks continue, the current capital markets have provided some short-term relief from liquidity pressures as the equity market has partially rebounded and the debt market has allowed some hospitals to restructure their debt. Additionally, learning from the recent past, some health systems are more focused on liquidity and debt issues and have implemented strategies to reduce risk. Clearly, further benefits depend on developments over the next 12-18 months in the capital markets, which is largely unpredictable given the higher degree of volatility in the current environment and uncertainty of the pace of economic recovery.

While the equity market has not returned to its peak, positive returns following the trough in March 2009 have resulted in improving investment balances, providing some relief to hospitals even if not restoring all of the prior losses. Additionally, movements in interest rates have reduced the negative mark-to-market values of swaps and returned large amounts of collateral required under these programs to hospitals. Higher investment balances have provided more headroom relative to financial covenants in bond and bank agreements, reducing the risk of hospitals breaching covenants and causing an unexpected acceleration of the bonds.

With the recent decline in rates to more favorable levels, relative to the spike in rates late in 2008, some hospitals have restructured their debt to reduce risks. Following the collapse of the auction rate market in early 2008, many hospitals replaced auction rate debt with VRDB debt, which introduced “put” risk in the event the supporting bank agreements are not renewed or unexpectedly accelerated. As the markets have opened to lower-rated borrowers and rates have declined, some hospitals have quickly moved to replace VRDBs with fixed rate debt, locking in permanent financing. Additionally, some hospitals have terminated a portion or all of their swaps.

In addition to debt restructuring, we believe there is greater attention to liquidity risks and some hospitals have implemented strategies to enhance liquidity. These strategies include:

» Changing the broad asset allocation to reduce exposure to equities

» Retaining the broad asset allocation but positioning the portfolio to be more liquid within assets categories (for instance, within a fixed income portfolio shifting into treasuries from mortgage-backed structures)

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» Placing a temporary moratorium on new commitments to alternative products

» Increasing diversification of managers and/or funds

» Suspending securities lending programs to better control the availability of securities and reduce the reliance on counterparty/manager

» Establishing or increasing general operating lines

Increasing Merger and Acquisition Activity Expected; On Balance Long-Term Positive for Industry

We believe merger and acquisition activity will increase between hospitals and between hospitals and physicians, a development that we believe, on balance, is a positive trend for the industry, notwithstanding the short-term implementation risk some individual health systems will face. We believe the pace of hospital-hospital merger activity will be slower than the rampant pace in the 1990s, although hospital-physician alignment strategies will likely accelerate from the current pace.

Increasing consolidation between not-for-profit hospitals and for-profit hospitals and among not-for-profit hospitals will be driven by several factors:

» More limited access to capital for smaller or less financially secure hospitals, particularly those that relied on bond insurance and bank-supported debt in the past, both of which are less available or more expensive

» Increasing capital needs to remain competitive and to develop better information technology

» Consolidation of payers, which necessitates further consolidation of providers to gain more negotiating leverage

» Need for greater economies of scale afforded larger healthcare systems

In comparison to the frenzy of merger and acquisition activity in the 1990s that was somewhat erratic, we expect the pace of merger activity among hospitals over the next one-to-two years to be slower and that most hospitals will be more selective. Acquisition prices are likely to be less lofty than in the 1990s because financing is not as readily available, concerns about liquidity and industry pressures may drive more cautious strategies, and some health systems have learned from past merger mistakes.

We believe that activity related to physician alignment strategies will continue, with the pace of activity accelerating. Physicians’ income is increasingly pressured from all payers, smaller hospitals are finding it more difficult to recruit and retain physicians, overall shortages and in certain specialties continue, and national discussions of creating a global payment system are all driving further hospital-physician alignment. Although physician employment is the prevalent strategy, hospitals are also pursuing other strategies such as joint ownership or management of service lines. Despite this pace, there appears to be a more rational approach to physician-related strategies with most hospitals avoiding the large acquisition prices paid to physicians in the 1990s and focusing more heavily on physician productivity.

On balance, we believe further consolidation between hospitals, and between hospitals and physicians, is a positive trend. Further consolidation among hospitals and physicians will increase competitive positions and leverage with payers, and provide opportunities for greater efficiencies to lower costs and improve quality. Increased merger activity presents challenges for smaller hospitals that choose to remain independent, but presents opportunities and an alternative to closure for those that choose a partner.

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Notwithstanding the overall benefits to the industry as a whole, we believe increasing merger and acquisition activity will pose implementation risk for certain individual health systems, especially those absorbing smaller hospitals that are struggling financially and will require management’s attention to improve performance and successfully integrate cultures and operations. Similarly, hospital-physician alignment strategies require ongoing investment, which is difficult for smaller hospitals to support.

U.S. PUBLIC FINANCE


Appendix

Moody’s Healthcare Ratings by State (as of December 31, 2009)

ISSUER [1] LONG-TERM RATING [2] OUTLOOK [3]

ALABAMA

Baptist Health System Baa2 S

Health Care Auth for Baptist Health (The) AL A3 S

Children's Hospital of Alabama A3 S

Cullman Regional Medical Center Baa3 N

DCH Regional Medical Center A2 N

Helen Keller Hospital Baa3 S

Huntsville Health Care Authority (Huntsville Hospital) A2 P

Jackson Hospital and Clinic Baa2 S

Marshall County Healthcare Authority A3 S

Northeast Alabama Regional Medical Center Baa1 S

University of Alabama Hospital at Birmingham A1 S

ARIZONA

Scottsdale Healthcare A3 S

University Medical Center Corporation Baa1 S

Yavapai Regional Medical Center Baa2 S

Yuma Regional Medical Center A2 S

ARKANSAS

Arkansas Children's Hospital A1 S

Baxter County Regional Hospital Baa2 S

Washington Regional Medical Center Baa1 S

CALIFORNIA

Antelope Valley Healthcare District Baa3 S

Cedars-Sinai Medical Center A2 S

Catholic Healthcare West A2 S

Children's Hospital Central California A3 P

Childrens Hospital Los Angeles Baa2 N

Citrus Valley Health Partners Ba2 N

City of Hope National Medical Center A1 S

Community Hospitals of Central California Baa2 S

El Camino Hospital District A1 S

Eisenhower Memorial Hospital A3 S

Fremont-Rideout Health Group A1 WD

Hoag Memorial Presbyterian Hospital Aa3 S

Good Samaritan Hospital B2 S

John Muir Health A1 N

Kaweah Delta Health Care District A3 S

Loma Linda University Medical Center Baa2 N

U.S. PUBLIC FINANCE



ISSUER [1] OUTLOOK [3] LONG-TERM RATING [2]

Lucile Salter Packard Children's Hospital Aa2 S

Palomar Pomerado Health Baa2 N

Rady Children's Hospital A2 P

Scripps Health A1 S

Sharp Healthcare A3 S

St. Joseph Health System A1 S

Stanford Hospital and Clinics A1 S

Sutter Health Aa3 N

Torrance Memorial Medical Center A1 S

Washington Township Health Care District A3 P

COLORADO

Aspen Valley Hospital District Baa3 S

Boulder Community Hospital A2 S

Catholic Health Initiatives Aa2 S

Children's Hospital Association A1 S

Exempla, Inc. A1 P

Longmont United Hospital Baa2 S

Memorial Health System A3 S

Parkview Medical Center A3 S

Poudre Valley Health Care A3 S

University of Colorado Hospital Authority A3 P

CONNECTICUT

Middlesex Hospital A3 P

St. Mary's Hospital Ba3 S

Yale-New Haven Hospital A1 P

DELAWARE

Christiana Care Health Services Aa3 S

Beebe Medical Center Baa1 P

DISTRICT OF COLUMBIA, WASHINGTON

Sibley Memorial Hospital A2 S

FLORIDA

Adventist Health System-Sunbelt A1 P

All Children's Hospital A1 P

Baptist Hospital, Inc. & The Baptist Manor, Inc. Baa1 S

Baptist Health South Florida Aa3 P

Bay Medical Center Ba1 WD

BayCare Health System Aa3 S

Cape Canaveral Hospital (Guaranteed by Health First) A3 S

Citrus Memorial Health System Baa3 N

Flagler Hospital A3 N

U.S. PUBLIC FINANCE




H. Lee Moffitt Cancer Center A3 S

Health First A3 S

Holmes Regional Medical Center (Guaranteed by Health First) A3 S

Lakeland Regional Health System A2 S

Lee Memorial Hospital A3 N

Leesburg Regional Medical Center Baa1 S

South Broward Hospital District Aa3 S

Mount Sinai Medical Center Ba2 N

Munroe Regional Health System A3 N

North Broward Hospital District A2 S

Orlando Regional Healthcare System A2 S

Sarasota Memorial Hospital A1 S

Shands Jacksonville Medical Center Baa1 S

Shands Teaching Hospital and Clinics A2 S

South Lake Hospital Baa2 S

South Lake Hospital (Guaranteed by Orlando Regional Healthcare System) A2 S

Tallahassee Memorial Regional Medical Center Baa2 P

Tampa General Hospital A3 S

University Community Hospital Baa3 N

GEORGIA

Central Georgia Health Systems Obligated Group Aa3 S

Children's Healthcare of Atlanta Aa2 S

Gwinnett Hospital System, Inc. A3 S

Hospital Authority of Valdosta and Lowndes County A2 S

Houston Healthcare A2 S

MCG Health, Inc. A2 S

Memorial Health University Medical Center Baa2 S

Phoebe Putney Memorial Hospital Aa3 S

Piedmont Healthcare Aa3 S

Southeast Georgia Health System A2 S

Southern Regional Medical Center Baa3 N

St. Joseph's/Candler Health System Baa1 S

University Health A1 S

Wellstar Health System Aa3 S

HAWAII

Hawaii Pacific Health Baa1 S

Kuakini Health System Ba1 S

Queen's Health Systems A1 S

U.S. PUBLIC FINANCE




IDAHO

St. Luke's Health System A2 S

ILLINOIS

Advocate Health Care Network Aa2 S

Alexian Brothers Health System A3 N

Anderson Hospital Baa2 S

Blessing Hospital A3 S

BroMenn Healthcare A3 S

DMH Health System A2 S

Edward Health Services Corporation A2 S

Elmhurst Memorial Healthcare Baa1 N

Hospitals Sisters Services Aa3 S

Lake Forest Hospital Foundation A3 S

Loyola University Health System Baa3 S

Memorial Health System A1 S

Methodist Medical Center of Illinois A2 S

NorthShore University Health System Aa2 S

Northwest Community Hospital Aa3 S

Northwestern Medical Faculty Foundation A2 S

Northwestern Memorial Hospital Aa2 S

OSF Healthcare System A2 S

Proctor Community Hospital Baa3 N

Provena Health Baa1 N

Resurrection Health Care System Baa1 N

Riverside Health System A2 S

Rush University Medical Center Obligated Group A3 P

Sherman Hospital Baa2 S

St. Vincent de Paul Health System (Guaranteed by Ascension Health) Aa1 S

University of Chicago Medical Center Aa3 S

INDIANA

Cardinal Health System Obligated Group Baa3 N

Clarian Health Partners A2 S

Elkhart General Hospital A1 N

Methodist Hospital Ba3 N

Parkview Health System A1 S

Riverview Hospital Baa1 S

Sisters of St. Francis Health Services Aa3 S

U.S. PUBLIC FINANCE




IOWA

Genesis Health System A1 S

Iowa Health System Aa3 S

Keokuk Area Hospital B3 N

Mercy Hospital A2 S

Mercy Medical Center (Cedar Rapids) A2 S

Northwest Iowa Health Center (Guaranteed by Sanford Health) A1 S

St. Anthony Regional Hospital Baa3 S

University of Iowa Hospitals Aa2 N

KANSAS

Hays Medical Center A2 S

Hiawatha Hospital Association (Guaranteed by Sisters of Charity of Leavenworth Health System) Aa3 S

Lawrence Memorial Hospital A3 P

Med-Map L.L.C. (Guaranteed by Sisters of Charity of Leavenworth Health System) Aa3

S

Rural Health Resources of Jackson Co. (Guaranteed by Sisters of Charity of Leavenworth Health System) Aa3 S

Salina Regional Health Center A1 S

Sisters of Charity of Leavenworth Health System Aa3 S

Stormont-Vail Health Care A2 S

KENTUCKY

Baptist Healthcare System Obligated Group Aa3 S

Hardin Memorial Hospital A2 S

Jewish Hospital Health Care Services A3 S

King's Daughters' Medical Center A1 P

Murray-Calloway County Hospital Baa2 S

LOUISIANA

Franciscan Missionaries of Our Lady Health System A2 S

Lafayette General Medical Center A3 N

Ochsner Clinic Foundation Baa1 S

Ochsner Community Hospital Baa1 S

Touro Infirmary Ba1 N

West Jefferson Medical Center Baa1 S

Willis-Knighton Medical Center A3 P

Woman's Hospital Foundation A3 S

MAINE

Maine Health & Higher Educ. Facs. Auth. (Reserve Fund Resolution) Aa3 S

MARYLAND

Adventist Healthcare Mid-Atlantic Baa2 N

Anne Arundel Health System A3 S

U.S. PUBLIC FINANCE




Bon Secours Health System A3 P

Calvert Memorial Hospital A2 N

Carroll Hospital Center A3 S

Dimensions Health Corporation B3 N

Doctors Community Hospital Baa3 N

Frederick Memorial Hospital Baa1 S

Greater Baltimore Medical Center A2 S

Howard County General Hospital Baa1 S

Johns Hopkins Hospital A1 P

LifeBridge Health A2 S

MedStar Health A2 S

Mercy Health Services Baa2 S

Peninsula Regional Medical Center A2 S

Suburban Hospital A2 S

Union Hospital Of Cecil County A3 S

University of Maryland Medical System A2 S

Upper Chesapeake Health System Baa1 S

MASSACHUSETTS

Baystate Medical Center A2 S

Boston Medical Center Baa1 N

CareGroup A3 S

Caritas Christi Health System Baa3 N

Children's Hospital (Boston) Aa2 S

Dana-Farber Cancer Institute A1 S

Harvard Pilgrim Health Care Baa3 S

HealthAlliance Hospital Baa2 P

Holyoke Hospital Ba1 N

Home for Little Wanderers A3 S

Lowell General Hospital A3 S

Massachusetts Biomedical Research Corporation Aa3 S

Massachusetts Biomedical Research Corporation (Guaranteed by Partners Healthcare System) Aa2 S

Massachusetts Eye & Ear Infirmary Ba1 S

Milford Regional Medical Center Baa3 S

New England Center for Children Ba2 P

Newton-Wellesley Hospital (Guaranteed by Partners Healthcare System) Aa2 S

Northeast Health System Baa2 N

Partners Healthcare System Aa2 S

Saints Medical Center Ba2 S

South Shore Hospital A3 S

U.S. PUBLIC FINANCE




SouthCoast Health System A2 S

UMass Memorial HealthCare Baa1 S

Vinfen Corporation Baa3 S

MICHIGAN

Bronson Methodist Hospital A2 S

Crittenton Hospital Medical Center A3 S

Detroit Medical Center Ba3 S

Dickinson County Healthcare System Baa3 S

Sparrow Obligated Group A1 S

Garden City Hospital Ba1 N

Henry Ford Health System A1 S

Holland Community Hospital A2 S

Hurley Medical Center Ba1 S

Marquette General Hospital Baa3 S

McLaren Healthcare Corporation Aa3 S

Memorial Healthcare Baa2 S

Mercy Memorial Hospital Corp. Obligated Group Baa3 S

Mid-Michigan Health A1 S

Munson Healthcare A1 S

Oakwood Hospital A2 N

Spectrum Health Aa3 S

Trinity Health Aa2 S

University of Michigan Hospitals Aa2 S

William Beaumont Hospital A1 N

MINNESOTA

Allina Health System A1 S

Fairview Health Services A2 S

Hazelden Foundation A3 S

HealthPartners Baa1 S

HealthEast Ba1 S

Maple Grove Hospital A3 N

Mayo Foundation Aa2 N

North Memorial Health Care A3 N

St. Cloud Hospital A3 S

MISSISSIPPI

Forrest General Hospital A2 S

Magnolia Hospital Baa2 S

Memorial Hospital A2 S

North Mississippi Health Services Aa3 S

U.S. PUBLIC FINANCE



MISSOURI

Ascension Health Aa1 S

BJC Health System Aa2 S

Boone Hospital Center A3 S

Capital Region Medical Center Baa1 S

CoxHealth A2 S

Heartland Regional Medical Center A2 S

Jefferson Memorial Hospital Baa2 S

Sisters of Mercy Health System Aa3 N

South Barry County Hospital District (Guaranteed by Sisters of Mercy Health System) Aa3 N

St. Anthony's Medical Center A2 S

Saint Luke's Health System, Inc. A1 N

MONTANA

Northern Montana Health Care Baa3 S

St. Peter's Hospital A3 S

NEBRASKA

BryanLGH Medical Center A1 S

Children's Healthcare Services A2 S

Nebraska Medical Center Aa3 S

Regional West Medical Center Baa1 N

NEVADA

Washoe Barton Medical Clinic (Guaranteed by Barton Healthcare System) Baa2 S

Renown Regional Medical Center A3 S

NEW HAMPSHIRE

Catholic Medical Center Baa1 S

Concord Hospital A3 S

Crotched Mountain Rehabilitation Center B2 N

Elliot Hospital Baa1 S

Exeter Hospital A2 S

Memorial Hospital at North Conway Baa3 S

NEW JERSEY

AtlantiCare Regional Medical Center (formerly Atlantic City Medical Center) A2 P

Atlantic Health System A1 S

Cape Regional Medical Center A2 S

CentraState Medical Center Baa1 S

Children's Specialized Hospital Baa3 S

Chilton Memorial Hospital Baa1 S

Clara Maass Medical Center (Guaranteed by Saint Barnabas Health Care System) Ba1 WD

U.S. PUBLIC FINANCE




Community Medical Center/Kimball Medical Center/Kensington Manor Care Center (Guaranteed by Saint Barnabas Health Care System) Ba1 WD

Cooper Health System Baa3 S

Deborah Heart & Lung Center B1 N

Hackensack University Medical Center Baa1 S

Holy Name Hospital Baa2 S

Kennedy Memorial Hospital University Medical Center A2 S

Newton Memorial Hospital A3 N

Palisades Medical Center of the New York Presbyterian Health System Ba2 N

Rahway Hospital Ba2 S

Robert Wood Johnson University Hospital A2 S

Saint Barnabas Health Care System Ba1 WD

Saint Joseph's Health System Ba1 P

Saint Peter's University Hospital Baa2 N

Shoreline Behavioral Health Center (Guaranteed by Saint Barnabas Health Care System) Ba1 WD

Somerset Medical Center Ba2 N

South Jersey Hospital System A2 S

Southern Ocean County Hospital Baa2 N

Trinitas Regional Medical Center Baa3 S

NEW MEXICO

Presbyterian Healthcare Services Aa3 S

San Juan Regional Medical Center A3 S

NEW YORK

Arnot Ogden Medical Center A3 S

Catholic Health Services of Long Island Baa1 P

Children's Village Ba1 N

Community-General Hospital Of Greater Syracuse B2 N

Health Quest Systems A3 S

Highland Hospital A2 S

Huntington Hospital Baa1 S

Lenox Hill Hospital Ba1 N

Memorial Sloan Kettering Cancer Center Aa2 S

Mount Sinai Hospital A2 S

New York City Health & Hospitals Corporation A1 S

New York Methodist Hospital Baa3 S

North Shore-Long Island Jewish Health System Baa1 S

NYU Hospitals Center Baa2 S

Orange Regional Medical Center (formerly Arden Hill Hospital-Horton Medical Center) Ba1 S

Siena Village (Guaranteed by Catholic Health Services of Long Island) Baa1 P

U.S. PUBLIC FINANCE




St. Catherine of Siena Medical Center (Guaranteed by Catholic Health Services of Long Island) Baa1 P

St. Peter's Hospital Baa2 S

Staten Island University Hospital Ba2 P

Westchester County Health Care Corporation Baa3 P

Westchester County Health Care Corporation (guaranteed by Westchester County) Aaa S

Winthrop-South Nassau University System Baa1 N

NORTH CAROLINA

Blue Ridge Healthcare System A3 S

Charlotte-Mecklenburg Hospital Authority (d/b/a Carolinas Healthcare System) Aa3 S

Cumberland County Health System (d/b/a Cape Fear Valley Health System) A3 N

Duke University Health System Aa2 S

FirstHealth of the Carolinas Aa3 S

Gaston Memorial Hospital (d/b/a CaroMont Health) A1 S

Halifax Regional Medical Center Ba3 N

Mission St. Joseph's Health System Aa3 S

New Hanover Regional Medical Center A1 S

North Carolina Baptist Hospitals Aa3 S

Northern Hospital District of Surry County Baa3 S

Novant Health A1 S

Rex Healthcare A1 S

Union Regional Medical Center (d/b/a Carolinas Medical Center-Union) A2 P

University Health Systems of E. Carolina A1 N

University of North Carolina Hospitals Aa3 S

WakeMed A1 S

Wayne Memorial Hospital A2 S

NORTH DAKOTA

Altru Health System Baa2 S

Meritcare Health System A2 S

OHIO

Adena Health System A3 P

Blanchard Valley Regional Health Center A3 S

Catholic Healthcare Partners A1 S

Nationwide Children's Hospital Aa2 S

Children's Hospital Medical Center of Akron A1 N

Cleveland Clinic Health System Aa2 N

Doctors OhioHealth (Guarantee by OhioHealth) Aa2 S

East Liverpool City Hospital A3 S

U.S. PUBLIC FINANCE




Fairview Health System (Member of Cleveland Clinic Health System) Aa2 N

Fairfield Medical Center Baa2 N

Firelands Regional Medical Center Baa2 S

Forum Health System Ca N

Health Alliance of Greater Cincinnati A1 WD

Kettering Medical Center Network Obligated Group A2 S

Lake Health Baa1 S

Lakewood Hospital (Affiliate of Cleveland Clinic Health System) A2 N

Marietta Area Health Care Ba1 N

MetroHealth System A2 S

Miami Valley Hospital Aa3 N

OhioHealth Aa2 S

ProMedica Health System Aa3 S

Robinson Memorial Hospital A3 S

Southern Ohio Medical Center A2 N

Southwest General Hospital A2 S

St. Luke's Hospital Baa1 N

Summa Health System Baa1 N

Trinity Health System A3 S

UHHS/CSAHS-Cuyahoga, Inc. & CSAHS/UHHS-Canton, Inc. Baa2 WU

University Hospitals Health System A2 S

Upper Valley Medical Center A3 S

OKLAHOMA

Integris Health Aa3 S

Norman Regional Hospital Authority Baa3 WD

Saint Francis Health System Aa2 S

St. John Medical Center A3 N

Stillwater Medical Center Baa1 P

Valley View Regional Medical Center Ba1 N

OREGON

Cascade Healthcare Community A3 S

Legacy Health System A2 S

Oregon Health and Science University A2 S

Willamette Falls Hospital Baa3 DEV

PENNSYLVANIA

Allegheny General Hospital (Guaranteed by West Penn Allegheny Health System) Ba3 N

Albert Einstein Healthcare Network A3 N

Butler Health System Baa1 N

Catholic Health East A1 N

Chester County Hospital Baa2 S

U.S. PUBLIC FINANCE




Children's Hospital of Philadelphia Aa2 S

Community Medical Center Baa2 N

Crozer-Chester Medical Center Baa3 S

Doylestown Hospital Baa2 N

Excela Health A3 S

Forbes Health System (Guaranteed by West Penn Allegheny Health System) Ba3 N

Geisinger Health System Foundation Aa2 S

Good Samaritan Hospital Baa2 N

Good Samaritan Medical Center of Johnstown (Guaranteed by Memorial Medical Center) Baa1 N

Hamot Health Foundation A3 N

Hazleton General Hospital Ba2 S

Hazleton-St. Joseph Medical Center (Guaranteed by Hazleton General Hospital) Ba2 S

Heritage Valley Health System (formerly Valley Health System) A1 P

Highlands at Wyomissing (Guaranteed by Reading Hospital & Medical Center) Aa3 N

Holy Redeemer Hospital Baa2 S

Jefferson Health System Aa3 S

Jefferson Regional Medical Center Baa2 S

KidsPeace, Inc. Caa2 N

Lancaster General Hospital Aa3 S

Lehigh Valley Health Network A1 S

Lewistown Hospital Baa2 N

Lower Bucks Hospital Caa3 N

Memorial Medical Center Baa1 N

Monongahela Valley Hospital A3 S

Montgomery Hospital Baa3 S

Ohio Valley General Hospital Baa2 N

Pinnacle Health A2 S

Reading Hospital And Medical Center Aa3 N

Sacred Heart Health System Ca N

St. Vincent Hospital Baa2 N

Somerset Hospital Baa2 S

St. Luke's Hospital and Health Network Baa1 S

Temple University Hospital Baa3 N

University of Pennsylvania Health System Aa3 S

University of Pittsburgh Medical Center Aa3 N

The Washington Hospital Baa2 N

WellSpan Health Aa3 S

West Penn Allegheny Health System Ba3 N

U.S. PUBLIC FINANCE




Western Pennsylvania Hospital (Guaranteed by West Penn Allegheny Health System) Ba3 N

Windber Medical Center of Johnstown (Guaranteed by Memorial Medical Center) Baa1 N

PUERTO RICO

Hospital De La Conception (Guaranteed by Ascension Health) Aa1 S

RHODE ISLAND

Lifespan Rhode Island Obligated Group A3 N

South County Hospital Ba1 N

St. Joseph Health Services of Rhode Island Ba3 N

Westerly Hospital B2 N

SOUTH CAROLINA

CareAlliance Health Services A3 S

Conway Hospital A3 S

Greenville Hospital System Aa3 N

Lexington County Health Services District A2 S

Palmetto Health Alliance Baa1 S

Self Regional Healthcare A2 S

Spartanburg Regional Healthcare System A1 N

SOUTH DAKOTA

Avera Health A1 S

Evangelical Lutheran Good Samaritan Society A3 N

Prairie Lakes Health Care System A3 S

Regional Health A1 S

Sanford Health A1 S

TENNESSEE

Baptist Health System of East Tennessee Hospital (Parity with Catholic Health Partners Trust Indenture) A1 S

Blount Memorial Hospital A3 S

Cookeville Regional Medical Center A3 N

East Tennessee Children's Hospital Baa1 N

Erlanger Medical Center A3 S

Jackson-Madison County General Hospital A1 P

Methodist Healthcare A2 S

Mountain States Health Alliance Baa1 S

TEXAS

Baylor Health Care System Aa2 S

Children's Medical Center of Dallas Aa3 S

CHRISTUS Health A1 N

Cook Children's Medical Center Aa3 S

East Texas Medical Center Regional Healthcare System Baa3 S

Ector County Hospital (Medical Center Hospital) A3 S

U.S. PUBLIC FINANCE




Good Shepherd Medical Center Baa2 S

Harris County Hospital District A1 S

Hendrick Health System A3 S

Hopkins County Hospital District Baa3 S

Hunt Memorial Hospital District Baa1 S

Irving Hospital Authority (Guaranteed by Baylor Health System) Aa3 S

Memorial Health System of East Texas Baa2 S

Memorial Hermann Hospital System A2 S

Methodist Hospitals of Dallas A1 S

Mission Hospital Baa2 S

Mother Frances Health System Baa1 N

Northeast Hospital Authority A3 S

Richardson Hospital Authority (Formerly Richardson Regional Medical Center) Baa2 N

Scott & White Memorial Hospital & Scott Sherwood & Brindley Foundation Aa3 S

Shannon Health System & Shannon Med. Ctr Ba1 S

Tarrant County Hospital District (JPS Health Network) Aa3 S

Texas Children's Hospital Aa2 S

Texas Health Resources Aa3 N

Texas Medical Center Central Heating and Cooling Services Corporation Aa3 S

Tomball Regional Hospital Baa3 N

United Regional Health Care System A3 S

Wilson N. Jones Memorial Hospital Ba3 S

UTAH

IHC Hospitals, Inc. Aa1 S

University of Utah Hospital (Moral Obligation Bonds) Aa2 S

VERMONT

Fletcher Allen Health Care Baa1 S

VIRGINIA

Arlington Hospital A2 S

Augusta Health Care, Inc. A1 S

Carilion Health System A1 N

Centra Health A2 N

Chesapeake General Hospital A3 S

Children's Hospital of the King's Daughters A3 S

Inova Health System Aa2 S

Johnston Memorial Hospital A3 S

Martha Jefferson Hospital & MJH Foundation A3 S

MediCorp Health System A3 S

Potomac Hospital Baa1 N

U.S. PUBLIC FINANCE




Prince William Hospital A3 N

Riverside Health System A1 S

Rockingham Health Care, Inc. Baa1 S

Sentara Healthcare Aa2 S

Valley Health System A1 S

Virginia Commonwealth Univ. Health System A1 S

WASHINGTON

Central Washington Hospital Baa2 S

Seattle Children's Hospital Aa3 S

Evergreen Hospital Medical Center A3 S

Kadlec Hospital Baa2 P

MultiCare Health System A1 S

Overlake Hospital Medical Center Baa1 P

Providence Health System Aa2 S

Seattle Cancer Care Alliance A3 S

Skagit Valley Hospital Baa2 S

Southwest Washington Medical Center A2 N

Stevens Hospital Ba2 S

Swedish Health Services A2 S

Virginia Mason Medical Center Baa2 S

WEST VIRGINIA

Cabell Huntington Hospital Baa1 N

Charleston Area Medical Center A2 N

Davis Memorial Hospital Baa3 N

Princeton Community Hospital Ba3 S

Weirton Medical Center Ba1 N

West Virginia United Health System A2 S

West Virginia University Hospitals, Inc. A2 S

WISCONSIN

Agnesian Healthcare, Inc. A3 S

Aurora Health Care, Inc. A3 S

Bellin Memorial Hospital A3 S

Children's Hospital and Health System, Inc. Aa3 S

Gundersen Lutheran A1 N

Luther Hospital (Guaranteed by Mayo Clinic) Aa2 N

Mercy Health System Corporation of Janesville A2 S

Meriter Hospital A1 S

Monroe Clinic A3 S

ProHealth Care Obligated Group A1 S

University of Wisconsin Hospitals & Clinics A1 S

U.S. PUBLIC FINANCE




Aspirus Wausau Hospital A2 S

Wheaton Franciscan Services Baa2 N

ThedaCare, Inc. A1 S

WYOMING

Wyoming Medical Center A3 S

[1] Organization is listed in the state where it is headquartered; the system may have debt issued in other states that carry the system's rating.

[2] Ratings reflect unenhanced ratings and underlying ratings, the latter of which also maintain ratings based on the insurer's claims paying rating.

[3] Positive (P), Negative (N), Stable (S), Uncertain (U), Developing (DEV), Watchlist for Downgrade (WD), Watchlist for Upgrade (WU), Watchlist with Uncertain Direction (WUD).

Related Research

Median Report:

» Not-for-Profit Healthcare Medians for Fiscal Year 2008, August 2009 (119606)

Special Comment:

» Diagnosing Not-for-Profit Hospital Upgrades, November 2009 (120893)

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.

http://www.moodys.com/cust/getdocumentByNotesDocId.asp?criteria=PBM_PBM119606

http://www.moodys.com/cust/getdocumentByNotesDocId.asp?criteria=PBM_PBM120893

U.S. PUBLIC FINANCE

31

Report Number: 122650

Author Lisa Martin

Editor Lisa Goldstein

Production Specialist Cassina Brooks Wing Chan

© 2010 Moody’s Investors Service, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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