- Investment portfolios are playing a key role for not-for-profit hospitals and their bottom lines, a new report from Fitch Ratings shows.
- The investment portfolio "provides a financial cushion to absorb unforeseen operating challenges that may lead to potential compression in operating margins," Fitch reports.
- Median investment income as a percentage of net income for Fitch's 221 nonprofit hospital credits was 48.5%.
Over the past decade, the stock market has generally performed well for investors, so it may come as no surprise that nonprofits with investment portfolios have benefited too.
For nonprofit hospitals, investment income plays an important role in the organizations' creditworthiness.
"Higher-rated not-for-profit (NFP) hospitals' large investment portfolios and cash help mitigate the volatility of certain alternative investments," Fitch said.
However, hospitals with a lower credit rating are less able to weather risky investments as they may rely on those investments to fund operations, the report noted.
Investment income is important to consider because it's an important piece of a nonprofit's overall financial standing. Nonprofit hospitals in particular have long complained of thin operating margins due to less than adequate reimbursement from government payers. But less attention is paid to the investment income nonprofit hospitals bring in.
For example, Ascension, one of the nation's largest nonprofit systems, reported its income from operations was about $105 million in 2018 while its investment return was $1.6 billion, according to its consolidated financial statement for fiscal year 2018.
Senate Finance Committee Chairman Chuck Grassley, R-Iowa, has long been a critic of nonprofit hospitals. Most recently, he called on the IRS to examine whether nonprofits are living up to their charitable obligations. Instead of paying some taxes, nonprofit medical centers are expected to provide free and discounted care to those in need.
A previous report from Axios showed just how profitable these nonprofits are and how much they benefit from their investment portfolios. The publication found that the nation's largest nonprofit hospitals reaped $21 billion from investments.