- U.S. healthcare companies that are highly leveraged may have difficulty maintaining profit margins but should see healthy cash flow and profitability despite pricing pressures, according to Fitch Ratings.
- The ratings agency's annual High-Yield Healthcare Handbook gives three provider companies a negative ratings outlook or watch: Quorum Health, Arcadia Healthcare Company and American Renal Holdings.
- Providers continue to face headwinds in patient volumes, shifts to outpatient or virtual care and pushes toward greater price transparency, Fitch noted. "The questions of access and affordability at the heart of the healthcare reform debate are critical to profitability of healthcare providers over the longer term. While a policy solution could accelerate disruption to providers' business models, secular shifts are already occurring," the report said.
Among the 21 healthcare companies Fitch analyzed for the report are hospital chains HCA, Community Health Systems, Tenet Healthcare and Universal Health Services. For CHS, Fitch expects break-even cash flow margins but debt maturity concerns. HCA and UHS should have sustained cash flow and strong operating outlook while Tenet can expect improved cash flow thanks to its cost restructuring program, according to the agency.
CHS, however, is also contending with a lack of flexibility, according to the report. "The operating profile is among the weakest in the investor-owned acute care hospital category because of a historical focus on rural and small suburban hospital markets that are facing secular headwinds to organic growth," the report said.
HCA has managed to buck one of the trends plaguing hospitals with 20 straight quarters of admissions gains. Fitch's Megan Neuburger told Healthcare Dive earlier this year the chain has been able to capture market share and patients through its robust network of outpatient facilities. "Relative to their peers, they were earlier in the trends that they needed to build out a continuum of care within their communities," she said.
Regulatory issues currently at play most likely to affect acute care hospitals are surprise billing, Medicaid expansion and the Medicare Access and CHIP Reauthorization Act, according to the report.
Surprise billing was the highlight of a Senate committee hearing Tuesday, as lawmakers split on whether a ban should include set payment rates for out-of-network providers, an arbitration process or a guarantee that all of a facility's providers are in-network.
Nonprofit providers should have an easier road ahead, according to an earlier Fitch report. The report noted a continued negative outlook and profit slide but an improvement over recent years and an expectation that organizations will gain ground in the latter half of 2019.