Becker's Hospital Review

Financial Management 40 S&P Overhaul of Credit Ratings Could Affect 20% of Its Hospital Base By Bob Herman S tandard & Poor's Ratings Services is looking to revamp how it issues credit ratings to nonprofit, standalone hospitals, and it could tinker with several hospitals' current credit position. S&P released a request for comment in December, proposing changes to its hospital credit methodology. In its proposal, S&P would base a nonprofit, standalone hospital's credit on several factors. First, analysts would look at a hospital's enterprise profile, which includes industry risk, economic fundamentals, management/governance and market position (which includes market share, medical staff, payer mix and clinical quality/IT). S&P would also look at the hospital's financial profile, including financial policies, li- quidity, debt/other liabilities and overall financial performance. From there, S&P would arrive at an initial indicative rating before considering potential positive and negative environmental factors. For example, "positive overriding factors" could be high cash reserves or local tax support. Negative factors include potential bankruptcy, weak management or a limited revenue base. S&P rates the debt of about 450 nonprofit hospitals and health systems. Based on preliminary testing, the agency said the new credit structure could affect 20 percent of its portfolio — 12 percent to 15 percent could have lower ratings, while 5 percent to 8 percent could have higher ratings, all generally by one notch. S&P is looking for written comments by March 7. S&P analysts said they have been gradually working on changes to the company's nonprofit hospital rating structure. "The purpose of the proposed criteria is to provide additional transparency and comparability to help market participants better understand our approach in assigning ratings to acute-care, standalone healthcare providers, to enhance the forward-looking nature of these ratings and to enable better comparisons between the sector's ratings and all other ratings," S&P said in a frequently asked questions document. "We also review and update criteria periodically as part of our normal course of business." n Top 5 Most Expensive Inpatient Conditions by Payer By Bob Herman T he top five most expensive inpatient conditions in 2011 were septicemia, osteoarthritis, complication of devices, general childbirth and heart attack, but the most expensive conditions change slightly depending on the payer. In August, the Agency for Healthcare Research and Quality and its Healthcare Cost and Utilization Project released a statistic brief on the total cost of hospital stays. Medicare and Medicaid picked up most of the $387 billion inpatient tab — 63 percent, or $242.9 billion. The five most expensive conditions cost more than 18 percent of all hospitalizations, while the top 20 most expensive represented 47.1 percent of hospitalization costs. However, some inpatient conditions cost more based on the payer. For example, septicemia was the costliest Medicare hospital condition, but childbirth was the most expensive condition for stays covered by Medicaid and private insurance. Here are the top five most expensive inpatient conditions from 2011, sorted by payer, according to the AHRQ brief. Note: The figures represent hospitals' cost to produce the services and what they billed — not the amount paid for services by payers — and they do not include the physician fees associated with the hospitalization. Medicare Medicaid 1. Liveborn (general childbirth) — $5.9 billion 2. Septicemia (except in labor) — $2.7 billion 3. Complication of device, implant or graft — $1.4 billion 4. Mood disorders — $1.4 billion 5. Pneumonia (except caused by tuberculosis and STDs) — $1.3 billion Private insurance 1. Liveborn (general childbirth) — $5.8 billion 2. Osteoarthritis — $5.7 billion 3. pondylosis, intervertebral disc disorders and other back problems — S $4.7 billion 4. Septicemia (except in labor) — $3.7 billion 5. Complication of device, implant or graft — $3.2 billion Uninsured 1. Heart attack — $819 million 1. Septicemia (except in labor) — $12.7 billion 2. Septicemia (except in labor) — $774 million 2. Osteoarthritis — $8 billion 3. Acute cerebrovascular disease — $538 million 3. Congestive heart failure (nonhypertensive) — $7.6 billion 4. Biliary tract disease — $441 million 4. Complication of device, implant or graft — $7.5 billion 5. Diabetes mellitus with complications — $440 million n 5. Pneumonia (except caused by tuberculosis and STDs) — $6.7 billion

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