ESSENTIALITY: Hospital Credit Analysis

Posted on August 15, 2025 by Dr. David Edward Marcinko MBA MEd CMP™

By Dr. David Edward Marcinko MBA MEd

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Why Hospital Essentiality?

An important component of hospital credit analysis is essentiality. Hospitals are unusual businesses that many times possess some form of essentiality to their communities. Health care is important to the economic vitality of every community. Many hospitals have served their communities for many years; it is not uncommon to find hospitals that have been continuously operating for more than 100 years in the same community.

Most hospitals are not-for-profit. In not-for-profit hospitals, no private party actually “owns” the hospital; control is vested in various boards, but no one explicitly owns a not-for-profit hospital. In a broad sense, communities own not-for-profit hospitals. They are considered “charities” with a “charitable purpose.” Though a not-for-profit hospital may not have owners, it has many “stakehold-ers,” parties that have vested interests in the continuing success of the hospital.

HOSPITAL TYPES: https://medicalexecutivepost.com/2025/08/06/hospitals-understanding-different-types/

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Many hospitals have broad and vast webs of stakeholders. Stakeholders are why hospitals rarely close or are shut down. Too many stakeholders have interests in the continuing successful operation of hospitals.

Another dimension of the essentiality analysis is service analysis. How significant are the hospital’s services? If the hospital shuts down, what population segments would suffer? How significant is the population that would suffer? How much would they suffer?

HOSPITAL ROI: https://medicalexecutivepost.com/2024/10/09/the-dupont-decomposition-equation-for-roi/

Assessment

And so, hospital stakeholder relationships need to be considered in the analysis of essentiality. How strong are these relations? How many are there? How important is the continuing success of this hospital to these stakeholders?

Analysis of hospital’s stakeholders and services should provide a credible view of the degree of essentiality associated with a hospital. Higher degrees of essentiality suggest higher likelihoods that hospitals, one way or another, will meet their commitments, particularly their payment
commitments.

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CREDIT: Much About Agreements!

Posted on January 11, 2025 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

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Credit report with score on a desk

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Credit analysis is a form of financial analysis used primarily to determine the financial strength of the issuer of a security, and the ability of that issuer to provide timely payment of interest and principal to investors in the issuer’s debt securities. Credit analysis is typically an important component of security analysis and selection in credit-sensitive bond sectors such as the corporate bond market and the municipal bond market.

Credit default swap index (CDX) is a credit derivative, based on a basket of CDS, which can be used to hedge credit risk or speculate on changes in credit quality.

Credit default swaps (CDS) are credit derivative contracts between two counterparties that can be used to hedge credit risk or speculate on changes in the credit quality of a corporation or government entity.

Credit quality reflects the financial strength of the issuer of a security, and the ability of that issuer to provide timely payment of interest and principal to investors in the issuer’s securities. Common measurements of credit quality include the credit ratings provided by credit rating agencies such as Standard & Poor’s and Moody’s. Credit quality and credit quality perceptions are a key component of the daily market pricing of fixed-income securities, along with maturity, inflation expectations and interest rate levels.

Credit Rating Agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves. In the United States, the Securities and Exchange Commission (SEC) permits investment banks and broker-dealers to use credit ratings from “Nationally Recognized Statistical Rating Organizations” (NRSRO) for similar purposes. As of January 2012, nine organizations were designated as NRSROs, including the “Big Three” which are Standard and Poor’s, Moody’s Investor Services and Fitch Ratings.

Credit rating downgrade, by a credit rating agency (Standard & Poor’s, Moody’s or Fitch) means reducing its credit rating for a debt issuer and/or security. This is based on the agency’s evaluation, indicating, to the agency, a decline in the issuer’s financial stability, increasing the possibility of default. A downgrade should not to be confused with a default; a debt security can be downgraded without defaulting. And, conversely, a debt issuer can suddenly default without being downgraded first–credit ratings and credit rating agencies are not infallible.

Credit ratings are measurements of credit quality provided by credit rating agencies. Those provided by Standard & Poor’s typically are the most widely quoted and distributed, and range from AAA (highest quality; perceived as least likely to default) down to D (in default). Securities and issuers rated AAA to BBB are considered/perceived to be “investment-grade”; those below BBB are considered/perceived to be non-investment-grade or more speculative.

Credit risk is the inability or perceived inability of the issuers of debt securities to make interest and principal payments will cause the value of those securities to decrease. Changes in the credit ratings of debt securities could have a similar effect.

Credit Risk Transfer Securities (CRTS) are unsecured obligations of the GSEs (Government Sponsored Enterprises). Although cash flows are linked to prepays and defaults of the reference mortgage loans, the securities are unsecured loans, backed by general credit rather than by specified assets.

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