Offsetting the downgrades were eight upgrades affecting $2.4 billion in debt in 3Q 2013, mostly driven by improving patient volumes and cost cutting strategies. Of the eight upgraded providers, six had positive volume trends and multiple years of financial improvements and were considered market leaders in their regions. Five of the upgrades had average admissions growth of 3.7% from FY 2011 to FY 2012.
Martin says downgrades signal the continuing difficulty that some, but not all, hospitals and health systems have with the fundamental shift away from fee-for-service volume-based care and towards reimbursements that reward outcomes and population health.
"It really varies by market," she says. "That is very difficult to quantify because it is a very slow start in terms of the industry trying to make this shift. We don't think it is going to happen quickly. But in certain markets where the volume declines are disproportionately large, there may be some of that dynamic going on."
Martin says lower volumes are not a temporary phenomenon that will improve with a rebounding economy, but are "more related to a fundamental shift in the industry."