Fitch's 2009 Outlook for the U.S. Healthcare sector is Negative. Fitch believes that, in general, the Healthcare sector will face a very difficult operating environment in 2009 resulting from weaker demand associated with the global economic recession and a U.S. governmental focus on reducing the consumer burden of health care spending.

Even though U.S. healthcare demand remains strong due to an aging demographic, Fitch expects that growing economic weakness will cause some consumers to delay or forego spending on prescriptions and procedures due to rising unemployment levels and declining wealth. As a result, volume weakness will likely increase, in part putting pressure on top line growth. It is also likely that a growing uninsured or underinsured population will result in an increase in bad debt and uncompensated care for the industry.

In the U.S., regulatory and legislative pressure on the healthcare industry will grow as the government increases its focus on controlling healthcare costs. Fitch expects that the government will encourage policy that has it take a more active roll in negotiating pricing and making low cost generic alternatives available to consumers. Key legislative and regulatory policy issues that can impact consumer healthcare costs include: universal coverage, patent reform, generic biologic pathway, revisions to Medicare Part-D and comparative effectiveness. While it is not likely that legislation creating universal healthcare would have a meaningful effect on 2009 results, the other issues such as revisions to Medicare Part-D could be enacted. The likely result of some of these reforms would be pricing pressure on healthcare industry participants. Therefore, weakening volume along with expected pricing weakness will result in downward top line revenue pressure for the industry, in general.

Fitch expects that industry participants will be able to, in part, limit the negative impact from revenue weakness on EBITDA by on-going cost containment and operational restructuring. Nevertheless, flexibility in capital spending should allow operators to produce generally stable levels of free cash flow. However, in spite of economic and operational challenges, Fitch expects companies to continue to aggressively return capital to shareholders through share repurchases and dividends. Merger and acquisition activity is expected to remain high for the industry as operators look to improve their product and service position in this challenging 2009 operating environment. As a result, Fitch expects this acquisition activity could lead to higher leverage resulting from increased debt levels.

Liquidity for the industry as a whole remains stable. U.S. healthcare companies with Fitch credit ratings generated last 12 months (LTM) free cash flow as of 3Q'08 of approximately $42 billion and maintained a balance sheet cash level of approximately $65 billion. This internal liquidity compares to a remaining 2008 and 2009 maturity schedule of approximately $21 billion. Revolving credit capacity for the industry remains strong with an average availability of approximately 79% or $42 billion. Nevertheless, there are companies within the sector that have weaker liquidity and financial flexibility, such as HCA, Inc. with higher near-term maturities and Tenet Healthcare Corp with significant negative free cash flow.