Health care facilities, medical gear, and managed health care companies have all been affected

By Robert Gold, Jeffrey Englander, CFA and Phillip Seligman From Standard & Poor’s Equity Research

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As the falling together of the housing place of traffic and the of the same family financial crisis have continued to unfold, the numbers of those struggling to meet mortgage payments, newly unoccupied, or absolutely in financial distress due to lower domicile equity values or stock market values have continued to grow. These forces have affected consumers’ economic well-being, and any by-product of this economic weakness has been a pullback in consumers’ practice of extrinsic health care services.

It has also hurt their ability to hire for soundness care services they conclude incur during these spells, resulting in increases in the incidence of health care-related disappointing debt. While in past periods of economic weakness health care was fairly resistant to downturns, given the increased influence of managed solicitude and higher footing of cost sharing in the form of co-pays and deductibles, this appears to be less the case now. These factors have begun to ripple from one side the health care system, impacting hospital, medical equipment, and managed health care companies.

The housing crisis is affecting the health care facilities in two ways: 1) through declines in elective procedures similar as hip and knee replacements, as profitable as screening procedures in the same state viewed like colonoscopies. (Though these procedures are, in most cases, necessary, many patients simple fellow them over when they feel financially constrained.), and 2) via an increase in the numbers of patients whose economic situations have worsened to the point they be possible to no longer meet of the healing art co-pays or deductibles.

At the most extreme are those patients who have lost their jobs and their medical coverage (typically with a lag) and are now uninsured. As patients’ economic situations worsen, they initially defer non-essential procedures; then, they may have trouble meeting co-pays or deductibles even while still employed, and finally, once they become unemployed, they may lose coverage altogether. Some may maintain coverage for 18 months at a stoutly higher cost, if they can afford to pay for it under what is known as COBRA.

As the current financial pass continues, we be persuaded these problems and their impacts forward freedom from disease care facilities have only worsened. For example, of the five publicly traded hospitals Standard & Poor’session Equity Research follows, three of those reported declines in admissions in the latest quarter. In etc., after having apparently begun to stabilize in the first moiety of 2008, reported bad debt trends for the publicly traded hospitals have newly begun to rise again. Lastly, even crowd of those with insurance are feeling the strain of higher of medicine costs. A new be zealous by the Center for Studying Health System Change found that approximately 20% of those surveyed report having trouble meeting their medical bills. This has catachrestic health care facilities to divide back on services and expansions, reduce capital budgets and purchases, and, in the worst-case scenario, shutter facilities. Given the continued tumor levels of unemployment, we would only expect these forces to be amplified into 2009.

In this economy, we favor those companies with less exposure to severe debt issues and those that deliver care that is less discretionary by nature, such as Psychiatric Solutions (PSYS); AmSurg (AMSG), what one. has less exposing. to elective procedures than many of its peers, in our view; and Sun Healthcare Group (SUNH).

For companies that develop, manufacture, and market medical equipment, the current operating environment remains generally positive, by our analysis. Through the September 2008 quarter, S&P Equity Research continued to see manifest of hot global demand in categories such for the reason that oncology equipment, surgical tools and equipment, selected reconstructive orthopedic implants, and plane robotic surgical machinery.