account when considering institutional ratings. Self-
supporting projects are generally viewed more
favorably than projects, which produce no addi-
tional revenues, all other factors being equal.Rating Stand-Alone Medical Schools
From a rating perspective, since most U.S. medical
schools are affiliated with a university or hospital
or both, it is impossible to evaluate the medical col-
lege without considering the associated
university/hospital operation. Partnerships and affil-
iations with other health care entities is still an
important part of the rating analysis, but only one
of many factors.
Most ratings associated with medical colleges are
refined by their relationship with a related universi-
ty and/or hospital. In the case of publicly supported
medical colleges, the rating also incorporates an
evaluation of state support. However, Standard &
Poor’s does rate free-standing medical schools not
affiliated with a university or a hospital.
The rating process begins with evaluation of
demand and a financial analysis similar to that used
when assessing other higher education institutions.
The analysis is tailored to incorporate special char-
acteristics of medical schools, such as limited class
size, high tuition levels, state reimbursement pro-
grams, research programs, affiliation agreements,
and revenues from faculty practice plans.State-Supported Medical Schools
State support adds another twist to the evaluation of
medical schools. Standard & Poor’s rates a few
combined hospital/medical school entities that
receive significant state appropriations. While stu-
dent demand, hospital utilization rates, and service
area characteristics are important rating factors for
schools of medicine that also run teaching hospitals,
strength of state support can be a key credit factor.Independent Medical Schools
Free-standing medical schools—those without hos-
pital facilities, offer an opportunity to assess a med-
ical college unaffected by the credit characteristics
of affiliated institutions or hospital revenues. These
colleges depend more on student demand and
tuition, than other medical schools, and must sup-
port themselves without the benefit of state money
or a larger university or hospital. However, they
may benefit from affiliated income from partner-
ships with adjacent or associated hospitals, and the
amount of reimbursement for residents and faculty
can be significant. In addition, because their faculty
practice in associated clinics and hospitals, they are
still subject to health care industry risk. Because of
their limited wherewithal and sometimes their weak
financial performance, historical ratings on free-standing medical schools generally have not been
rated higher than the ‘A’ category.Demand Analysis
Demand analysis of medical schools mirrors that
used in evaluating colleges and universities.
Standard & Poor’s focuses on enrollment trends,
application, acceptance and matriculation results,
student quality, and competition from other pro-
grams. Medical schools often offer more than just
medical degrees, and some medical schools offer
both allopathic and osteopathic programs in medi-
cine. Larger, more comprehensive programs provide
diversity, particularly since health science academic
programs are known for their cyclicality. However,
historical demand for medical school admission has
far exceeded the available supply. This relationship
holds, despite several years of a national decline in
applications to medical schools. In general, allopath-
ic schools of medicine tend to be more competitive
in admissions than osteopathic schools of medicine,
however, there are more standalone osteopathic
schools of medicine rated by Standard & Poor’s
than allopathic. More of the nation’s allopathic
medical schools are associated with large, research
universities. Osteopathic medicine schools, with a
few exceptions tied to public, research universities,
tend to be standalone institutions.
Since there are so few medical school spaces, stu-
dents’ choices are limited, and matriculation rates
are often higher than for other unrelated profes-
sional programs such as law and business. The flex-
ibility afforded by such selective admissions is
particularly significant for medical schools that can-
not rely on enrollment in other programs to offset
periods of falling demand. While medical colleges
remain vulnerable to industry changes and changing
attitudes regarding the medical profession,
Standard & Poor’s expects demand for medical
education to remain strong, and in fact, recent
trends indicate a positive movement upward in
medical school applications.Financial Analysis
Standard & Poor’s financial analysis of medical col-
leges also parallels the approach used for other
higher education institutions, centering on:
■Revenue and expense composition;
■Annual financial operating results;
■Liquidity and endowment; and
■Debt load.
Standard & Poor’s uses the same financial ratios
and indicators used in the assessment of colleges
and universities. The chief focus on the balance
sheet is liquidity represented by various degrees of
restrictions on equity. Many medical schools built
their financial reserves more through decades ofEducation And Non-Traditional Not-For-Profits190 Standard & Poor’s Public Finance Criteria 2007