S&P sees mostly stable outlook for nonprofit hospitals this year
- The U.S. not-for-profit hospital sector will remain stable this year, but some major risks persist, according to S&P Global's latest report.
- On the plus side, hospitals are continuing to report strong balance sheets, business profiles are improving and organizations are diversifying through joint ventures and other forms of collaboration.
- Raising concerns are the possibility of a recession, changes in Medicaid, industry encroachment from nontraditional competitors and costs associated with an aging population. S&P also points to Trump administration tweaks to the Affordable Care Act and the potential impact of the Texas court ruling that the ACA is unconstitutional.
Nonprofit hospitals contend with the same pressures facing for-profit hospitals with shrinking volumes, lower reimbursements and rising costs. Community nonprofits in Medicaid expansion states also have more Medicaid patients, meaning lower payment rates than private insurance.
New business models such as the Berkshire Hathaway-J.P. Morgan-Amazon employee healthcare initiative and the CVS-Aetna merger may not turn healthcare upside down this year, but could impel changes in the future, according to the report.
Overall, 81% of nonprofit hospitals are considered stable, with a fairly even split between security ratings upgrades and downgrades and smaller gap between favorable and unfavorable outlook changes in 2018 compared with 2017, according to the report. Last year saw 40 updates and 47 downgrades. The number of noncriteria-related rating changes also dropped for the second straight year — to 63, from 70 in 2017 and 80 the prior year.
"Although the ratio of upgrades and downgrades has been uneven recently, the absolute difference between upgrades and downgrades is limited and the number of rating changes remains small relative to the total number of rated providers," the report says. "We attribute most of the noncriteria-related 2018 downgrades to operational weakness and some to additional debt. Factors in the noncriteria-related upgrades were benefits from mergers and acquisitions that strengthened enterprise profiles, and continued improvement in profitability and balance sheets."
S&P also found signs that operating margins of nonprofit hospitals are bouncing back after large initial investments in health IT and EHRs. But growing cybersecurity costs and spending on artificial intelligence and data analytics could erode those gains.
The forecast echoes other recent reports. Fitch Ratings deemed not-for-profit hospital performance a mixed bag in the 2018 third quarter, with 11 upgrades and 11 downgrades. A separate Fitch report warned of continued decline in acute care operating profitability at nonprofits.