Fitch identifies biggest issues facing nonprofit hospitals: 3 takeaways

U.S. nonprofit hospital and health systems face a myriad of challenges as they try to reduce costs and improve quality.

Becker's Hospital Review recently caught up with Kevin Holloran, senior director and head of Fitch's U.S. nonprofit healthcare group, to find out what he sees as the biggest issues facing these organizations, and if he expects those issues to continue.

Here are three takeaways.

1. Rising expenses are offsetting revenue gains. Nonprofit hospitals and health systems across the county face financial uncertainty, spurred by operating margin compression, according to Mr. Holloran. He says organizations are seeing expenses increase in areas such as nursing and supplies, particularly pharma, but more limited increase in revenues to offset those expenses.

2. Political uncertainty and hospital financial uncertainty are intertwined. With this financial uncertainty comes political uncertainty as well. For instance, in December President Donald Trump signed Republicans' tax law that repeals the ACA's individual mandate to buy health insurance. Fitch believes this will cause more instability due to an increased uninsured population.

3. New players in the healthcare industry are a threat. Mr. Holloran believes the biggest uncertainty for nonprofit hospitals and health systems relates to nontraditional players' involvement in the healthcare space. Retail giant Walmart revealed March 29 it is in preliminary talks to buy health insurer Humana. Additionally, Apple plans to open primary health clinics for its own employees and their families this spring. The company also announced March 29 it expanded its iPhone's Health Records feature pilot to 39 U.S. health systems. And, Amazon revealed Jan. 30 it joined with Berkshire Hathaway and JPMorgan Chase & Co. to launch a new healthcare company.

"So what does that [all] mean?" Mr. Holloran says. "I think the message to the sectors is, 'We're ready for lower costs, better quality and more access, and we're willing to do it ourselves, faster than you can.'"

For healthcare providers rated by Fitch, Mr. Holloran believes nontraditional players' involvement in the healthcare space will have the most effect on the front end. He believes there will be more convenient and instantaneous care at places like urgent care centers, or even handheld devices, rather than in physician offices or hospitals. Still, he believes the core of healthcare such as surgical procedures and treating chronic diseases "won't be uberized."

Amid uncertainty, Mr. Holloran recommends nonprofit hospitals and health systems embrace nontraditional players' efforts and explore how they can benefit from those efforts or partner with the nontraditional players. He says he doesn't see the trend going away next year, or for the foreseeable future.



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