S&P Global Ratings' U.S. not-for-profit health care outlook and rating actions in 2020 were heavily influenced by the pandemic with a higher than typical amount of unfavorable outlook revisions (mostly to negative from stable), particularly in the spring when we simultaneously revised outlooks on 42 health care organizations in anticipation of upcoming financial and operating pressures. In addition, in 2020 we downgraded four times more organizations than we upgraded. Four of the nine upgrades occurred in January before the pandemic with all but one of the remaining upgrades due to affiliation or merger with a higher rated organization.

Nevertheless, we maintained a majority of our ratings, reflecting financial flexibility from strong balance sheets, enterprise profile strengths, and governmental support through stimulus funds. There have also been some favorable outlook actions including credits that were revised back to stable after having outlooks revised to negative as part of our multi-credit rating action in April 2020 when we believed those credits with weaker reserves and credit characteristics could face relatively more pandemic related challenges.

The health care portfolio is composed largely of stand-alone hospitals (59%) and health care systems (35%) with the remaining ratings on long-term care, human service providers and a physician group practice. Relative to their percentage of the total portfolio, the stand-alone providers had a higher number of downgrades and unfavorable outlook revisions in 2020. However, stand-alone hospitals also accounted for over three-quarters of the favorable outlook revisions. We believe this reflects the continued bifurcation of credit quality for stand-alone providers and the larger portfolio of stand-alone ratings. Health care systems were not immune to credit actions either as they experienced upgrades, downgrades, and both unfavorable and favorable outlook actions, although in each category at a rate lower than their percentage representation in the overall portfolio. We believe this reflects system benefits, including size, scale, and for many, centralized control, all of which provided benefits in managing through the pandemic.

The 'A' category is the largest rating category for both our stand-alone hospitals and health care systems. However, while almost all the health care systems outside the 'A' category are in the 'AA' category, stand-alone provider ratings skew to the 'BBB' and speculative grade categories. The rating downgrades were spread across all categories and although there were only four downgrades on credits rated in the 'AA' category, they were all large health care systems. The remaining downgrades occurred fairly evenly on ratings in the 'A' and 'BBB' categories; there were somewhat fewer speculative grade downgrades.

Chart 1

Table 1

U.S. Not-For-Profit Health Care Rating Action Summary, 2020
	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
Rating initially assigned	1	1	2	1	5
Rating raised	6	1	0	2	9
Rating lowered	8	14	7	7	36
Favorable outlook revision	5	3	14	6	28
Unfavorable outlook revision	10	52	6	6	74
Total	30	71	29	22	152

We rate health care organizations in every state, although most of our ratings are in the Midwest and Southeast. The shapes of the rating distributions for the Northeast and the West regions generally resemble a bell curve whereas the rating distributions for the Southeast, Midwest, and Southwest exhibit positive skew. This is because characteristics of each region can materially affect ratings due to differences in demographic trends, payer mix, third party reimbursement, and clinical practices.

Consistent with the ratings distribution for the entire health care portfolio where the 'A' category ratings are most frequent, four of the five regions have most of their ratings in the 'A' category. The exception is the Southwest region where almost half of the ratings are in the 'AA' category. Ratings in the Southeast have the lowest potential volatility with 82% stable outlooks at the end of 2020. The Midwest has the highest percent of ratings in the 'AA' and 'A' categories and the fewest speculative grade ratings. The Northeast region has about one-third of its ratings in the 'BBB' category, which is higher than any of the other regions, and no positive outlooks. The West has the highest percent of negative and positive outlooks as well as speculative grade ratings.

Chart 2

As we move through 2021, we are watching volume trends, virus and vaccine rates, the economy, and the rate of recovery for margins and cash flow. We recognize that broad-based government support, strong leadership through the pandemic, and a generally quick rebound in volume for most providers is moving the sector toward more stability relative to spring 2020. However, we believe there is still broad-based rating pressure that will continue through 2021 (see "Outlook For U.S. Not-For-Profit Acute Health Care: Navigating The Bumps While Getting Back On Track," published Jan. 12, 2021, on RatingsDirect) and that we have reflected in our outlook.

For a list of new ratings assigned last year see table 2. For lists of upgrades, downgrades, and unfavorable and favorable outlook revisions without a rating change taken during 2020 please see tables 3, 4, 5, and 6.

Table 2

Table 3

Table 4

Table 5

Table 6

Related Research

• U.S. Not-For-Profit Health Care Outstanding Ratings And Outlooks As Of Dec. 31, 2020, Jan. 12, 2021
• U.S. Not-For-Profit Health Care Rating Actions, December 2020 And Fourth Quarter 2020, Feb. 4, 2021
• U.S. Not-For-Profit Health Care Rating and Outlook Actions: Third-Quarter And September 2020, Nov. 3, 2020
• U.S. Not-For-Profit Health Care Rating And Outlook Actions, June 2020 And Second-Quarter 2020, July 27, 2020
• U.S. Not-For-Profit Health Care Rating And Outlook Actions: March 2020 And First-Quarter 2020, April 17, 2020