The wealthiest hospitals in the U.S. largely emerged from the pandemic strained but still financially sound, while solo hospital operators or small health systems that entered the pandemic with less cash reserves are increasingly in trouble with lenders, according to The Wall Street Journal.
High labor costs and financial losses have put many hospitals and health systems in a precarious position with lenders, who are demanding that dwindling reserves be used as a guarantee for bondholders.
To preserve cash, many health systems are reducing or eliminating services that have been operating at a loss. Maternity care, pediatrics and behavioral health are examples of such services hospitals are cutting.
Some hospitals do not have enough cash to satisfy lenders, which generally require borrowers to meet periodic profit and other financial targets, according to the Journal. Hospitals are being pushed to hire consultants to get their operating margins back on track or set aside cash for repayment. Hospitals that fail to meet lender obligations will be at risk of credit downgrades and higher interest rates.
To circumvent this, many hospitals and health systems are selling off assets, cutting unprofitable services or laying off workers. Some are refinancing debt, accepting higher interest rates for new loan terms, while others are pushing lenders for more time.
Hospitals' overall cash levels are around the same level as they were before the pandemic, which pushed the government to provide federal aid, but increasing labor costs are eating into those reserves, according to the report.
The good news for hospitals is that patient volumes are picking up and contract labor expenses are falling, but 2023 will remain a challenging year for health systems, many of whom are "not out of the woods yet," Erik Swanson, senior vice president of data and analytics with Kaufman Hall, told Becker's.