Rating Criteria
Standard & Poor’s Ratings Services applies the fol-
lowing criteria to the outstanding public finance
group practice ratings. In addition, portions of the
criteria are applicable to the analysis of physician
components in integrated delivery systems.
Rating considerations for not-for-profit physician
groups include analysis in the following categories:
■Physicians
■Operations
■Finances
■Competition
■Leadership
■Institutional relationships
■Information systems; and
■Legal covenants.
The most critical factors for ratings assessment
are the physicians, operations and finances. The
other aspects of the clinics discussed below con-
tribute to strength in these key areas:
Physicians
The most critical part of the rating process focuses
on physicians, since they are the actual revenue pro-
ducers. The composition, qualifications, quantity,
and quality of the physician group play an impor-
tant part in the analysis. In addition, physician
leadership’s philosophy and overall strategic vision,
including managed care contracting and willingness
to forge alliances with alternative providers, is an
important rating factor. Although the analysis will
be slightly different for stand-alone group practices
compared with faculty practice plans, in general,
Standard & Poor’s reviews the following factors:
■Number and specialty mix of physicians, includ-
ing adequacy of primary care physicians currently
in the group, as well as recruitment plans and
related funding;
■The nature of the local physician market (for
example, practice patterns, general availability of
physicians, and the competitive position of the
group in the market);
■General administrative factors including the cre-
dentialing process as well as the type of employ-
ment contract used—noncompete clause,
compensation allocation consistent with managed
care incentives, salaries competitive with industry
norms by specialty and with local salaries;
■Top-10 revenue-producing physicians (including
percent of total revenues generated, age, and tenure
with the group), the overall staff’s average age,
board certification rates, as well as additions/dele-
tions to the staff in the past three years; andFor faculty practice plans, ages and tenure of the
chairs of the top-five revenue-producing depart-
ments, vacancies in the major services (internal
medicine, surgery, obstetrics, family practice), and
percent of tenured faculty.
Operations
The history of the group practice, its structure, and
its longevity are the starting points in Standard &
Poor’s evaluation of the credit. The primary consid-
eration is the likelihood that the group practice will
remain viable for the life of the bonds.
Consequently, Standard & Poor’s Public Finance
Ratings group will rate debt issued only by not-for-
profit group practices; the financial and operational
incentives of a proprietary group generally are not
consistent with the capital retention levels necessary
for an investment-grade rating. Overall investment
grade physician groups will demonstrate a competi-
tive business position, a sound balance sheet and a
track record of adequate cash flow and debt service
coverage. Beyond understanding how and why the
physicians came to work together, Standard &
Poor’s must assess the group’s ongoing strategy and
its appeal to physicians in the future.
Standard & Poor’s focuses primarily on multi-
specialty clinics with 100 doctors or more. Among
the operational aspects of the clinic Standard &
Poor’s examines are:
■History of the group;
■Market position and breadth of patient draw;
■Nature of relationship with other medical facilities
■Economics of service area;
■Current physical assets and proposed future
needs; and
■Debt structure including use of bond proceeds.
Competition
Multi-specialty group practices compete not only
with other groups and solo practitioners, but often
with outpatient surgery centers, diagnostic centers,
testing laboratories, and hospitals. A group’s ability
to attract and retain physicians and patients is para-
mount to the rating. As competition for patients
among physicians and other providers intensifies,
group practices must demonstrate their cost effec-
tiveness and ability to attract patients and prof-
itable managed care contracts. Multi-specialty
groups must demonstrate their ability to control
costs and maintain profitable operations in this
environment.
The key competitive factors reviewed include:
■Physician competitors for patients, including
other groups, solo practitioners, and hospitals;
■Nonphysician competitors seeking to provide
medical services directly to patients, includingHealth Care170 Standard & Poor’s Public Finance Criteria 2007