Struggles will continue for nonprofit hospitals in 2019, Fitch says

By | December 6, 2018

Nonprofit hospitals will continue struggling to adapt to the paradigm shift in the broader health care sector into next year, according to Fitch Ratings 2019 not-for-profit hospital and health systems outlook report.

The negative sector outlook for nonprofit hospitals is due largely to ongoing operational weaknesses, which have evolved from an ongoing trend into a real fundamental shift in the sector.

IMPACT

Hospitals now have to continuously focus on ongoing weaknesses in their operations, which have shifted from an ongoing trend to a true, fundamental shift in the sector.

Countering operational pressures for hospitals is the fact that balance sheets are stronger than they have been in over a decade.

It’s this balance sheet flexibility that will benefit larger hospital systems most as they plan to cut billions from their expense bases to become profitable on Medicare rates. Lower rated hospitals, in contrast, are less able to trim expenses, and as such are more likely to be price takers than price makers when negotiating commercial rates.

WHAT ELSE YOU SHOULD KNOW

Consolidation of hospital systems through mergers and acquisitions and alignment activity is also likely to continue in 2019, the report said. Size and scale alone don’t guarantee success, but further consolidation is a likelihood given current pressures on the industry.

Operating pressures notwithstanding, Fitch maintains its stable outlook for nonprofit hospitals next year, with most able to offset those short-term pressures with their absolute levels of cash and investments.

THE TREND

For the second year running, expenses have surpassed revenues for nonprofit and public hospitals, creating instability and further pressuring hospital margins, according to the fiscal 2017 sector medians from Moody’s Investors Service.

Fueling the trend are lower reimbursement rates, shift to outpatient care, growing merger and acquisition activity, and rising ambulatory competition. The drop in expense rate was due largely to better control of labor and supply costs, Moody’s said.
 

Twitter: @JELagasse

Email the writer: jeff.lagasse@himssmedia.com

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