The outlook for nonprofit hospitals is "deteriorating," Fitch Ratings said Tuesday.
The ratings agency revised its sector outlook from neutral, as hospitals are squeezed by pricier labor, more expensive supplies due to inflation, and investment losses.
“While severe volume disruption to operations appears to be waning, elevated expense pressure remains pronounced,” Fitch’s Senior Director Kevin Holloran said in a statement. “Even if macro inflation cools, labor expenses may be reset at a permanently higher level for the rest of 2022 and likely well beyond.”
S&P Global Ratings issued a similar outlook in June, warning that nonprofit healthcare faces a difficult operating environment amid mounting pressures from both inflation and more expensive labor.
"The key risks remain labor and inflation, a weaker economy, the possibility of recession in the next year, and recent investment market volatility," S&P Global Ratings credit analyst Suzie Desai said in a June statement.
Nurses are a key issue when it comes to labor pressure, Fitch said. The pandemic has only exacerbated already high demand for their work.
Hospitals have relied on staffing agencies to find nurses for their wards. Agencies have charged elevated rates throughout the pandemic, causing frustration and pleas from hospital lobbies to federal regulators to investigate rate increases.
Burned out and frustrated, nurses have turned to organizing and work stoppages to demand higher pay and better working conditions.
Some of the nation's largest nonprofit hospitals have reported net losses for the second quarter of the calendar year, including Kaiser Permanente and Sutter Health, both of which saw expenses climb and investment income decline.
Washington-based Providence, the system that treated the country's first COVID-19 patient, is restructuring and cutting executive roles amid operating challenges and financial losses.
Ratings agency Fitch does not expect "en masse" downgrades but said the sector is likely to enter a period in which downgrades and negative outlooks outpace upgrades and positive outlooks.
Fitch said the period may lead to an uptick in mergers and acquisitions, but regulators are likely to push back on tie-ups. An important factor for hospital credit quality will be local economic trends, Fitch said, pointing to strong population growth as a key factor to growing revenue to balance out expenses.
As hospital operators have struggled in the second quarter, profits have climbed for the nation's largest insurers as signs indicated demand for medical care was weak in the second quarter.