Fitch: Steady Demand, Pricing Pressures for US Healthcare in '08

Business Wire, Dec 5, 2007

Although providers will be challenged by uncompensated care and weak volumes, Fitch expects favorable pricing and acquisitions to support credit metrics for the sector. Managed care pricing is largely set for 2008, and Fitch expects continued mid- to high-single-digit pricing increases, on average. Fitch believes the new Medicare IPPS (inpatient prospective payment system) rules may be more of a challenge, particularly for rural operators. The adoption of the MS-DRGs (severity-adjusted diagnosis-related groups), behavioral offset, and other changes will result in rate increases below the average experienced for the past couple of years. However, Medicare pricing is still expected to increase in 2008. In addition to pricing, Fitch believes growth will be driven by acquisitions, with certain providers, such as Universal Health Services and LifePoint, expected to be more active than others, such as Community Health Systems and Tenet.

Fitch currently rates the healthcare sector as follows:

-- Abbott Laboratories ('AA-', Outlook Negative)

-- Allergan, Inc. ('A-', Outlook Stable)

-- AmerisourceBergen Corp. ('BBB', Outlook Stable)

-- Baxter International, Inc. ('A', Outlook Stable)

-- Beckman Coulter, Inc. ('BBB', Outlook Stable)

-- Boston Scientific Corp. ('BB ', Outlook Negative)

-- Bristol-Myers Squibb Co. ('A ', Outlook Stable)

-- Cardinal Health, Inc. ('BBB ', Outlook Stable)

-- Community Health Systems, Inc. ('B', Outlook Stable)

-- Covidien Ltd. ('A', Outlook Stable)

-- DaVita Inc. ('BB-', Outlook Stable)

-- Eli Lilly & Co. ('AA', Outlook Stable)

-- Express Scripts Inc. ('BBB', Outlook Stable)

-- HCA, Inc. ('B', Outlook Stable)

-- Health Management Associates ('BB-', Outlook Negative)

-- Johnson & Johnson ('AAA', Outlook Stable)

-- LifePoint Hospitals, Inc. ('BB-', Outlook Stable)

-- McKesson Corp. ('BBB ', Outlook Stable)

-- Medco Health Solutions Inc. ('BBB', Outlook Stable)

-- Merck & Co. ('AA-', Outlook Stable)

-- Owens & Minor Inc. ('BBB-', Outlook Stable)

-- Pfizer, Inc. ('AAA', Outlook Stable)

-- Schering-Plough Corp. ('BBB ', Outlook Stable)

-- Tenet Healthcare Corp. ('B-', Outlook Stable)

-- Thermo Fisher Scientific, Inc. ('BBB ', Outlook Stable)

-- Universal Health Services ('BBB', Outlook Stable)

-- Watson Pharmaceuticals Inc. ('BBB-', Outlook Stable)

-- Wyeth ('A-', Outlook Stable)

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.