Not-for-profit healthcare systems are going through a rough year, but a Fitch Ratings report released Wednesday shows that even the hardest-hit providers could have it. start to see improvement in the coming months.
The industry ended 2022 with margins shrinking and some health systems losing billions of dollars in operations. High labor costs, coupled with ongoing supply chain problems and inflation, continue to hamper the financial performance of systems. These challenges have no short-term fix, and labor costs are expected to continue to rise through at least 2023, said Kevin Holloran, senior director at Fitch.
The credit rating agency downgraded the nonprofit health systems sector to “worsening” in August and maintained that outlook in its latest report, acknowledging the possibility of a negative outlook. The positive outlook for the health system will outweigh the positive outlook for some time.
Holloran said hospitals still need a better balance between medical and surgical volumes. The so-called “pandemic triad” — COVID-19, respiratory syncytial virus, and influenza — means fewer inpatient beds are used for revenue-driven services like elective surgery.
“It’s almost a joke that ‘I lose money for every shift I do’ because the labor is so expensive, especially in those cases,” Holloran said.
But 2023 could be a turning point, according to the report, which predicts that many suppliers will be able to break even on their operations on a monthly basis at some point this year, with “improvement”. gradual improvement” from there.
“We think we are starting to come out of the worst and by the end of the year, at some point this year, we will have overcome that hurdle and get closer and closer to getting back to normal. usually,” said Holloran.
That doesn’t mean suppliers will ignore their financial challenges. Many systems are at risk of defaulting on credit arrangements this year – a situation exacerbated by falling cash flows and rising interest costs. In December, Moody’s Investors Service reported 34 healthcare institutions rated B3- or lower, holding nearly $65 million in combined outstanding debt. The Fitch report notes that improvements in the investment market or debt relief should alleviate some of the impact on credit ratings.
Holloran said he expects more systems to exit the network and payer contracts, as well as push for shorter contract terms, as providers continue to adjust costs.
