2022 was bad. 2023 may have some light at the end of the tunnel, Fitch says: 5 things to know

While 2022 was one of the most difficult years financially for nonprofit healthcare systems, the outlook for 2023 does provide some cautious optimism, Fitch Ratings analysts said on a webinar Jan. 11.

Speakers included Kevin Holloran, sector head for U.S. nonprofit healthcare, and Mark Pascaris, director and analytical lead healthcare.

"We are beginning to come out of the worst of things," Mr. Holloran said. "We expect most of our rated universe to hit break-even on a month-to-month basis some time in 2023."

Five things to know:

  1. There will continue to be "extremely contentious" negotiations between healthcare providers and payers, Mr. Holloran said. An "above average" exiting of contracts and networks is expected.
  2. There will be far more labor strikes in 2023 with "very contentious" labor negotiations, Mr. Holloran said. Unions will be quick to move as healthcare systems seek to recruit and retain "on steroids."
  3. Regional differences will continue to emerge. The fast-growing Southern states of Florida, Texas and Georgia will see significant capital expenditure, for example, while regions with declining populations and others will seek to tighten such expenses.
  4. There will be increased merger and acquisition activity even as the Biden administration takes a harder look at potential anti-competitive behavior. "We know everyone is talking to everyone else" about ways in which they can partner, Mr. Pascaris said. "It's a very interesting time for M&A as increased levels of stress will likely include greater levels of M&A."
  5. Healthcare systems cannot spend their way out of financial difficulties because the cost of labor will remain very high. The 75/75 conundrum where most systems' revenues are fixed at 75 percent and most have a similar 75 percent fixed expense in terms of salaries and supplies is an "unstainable" model, Mr. Holloran said.

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