Inflation to erode nonprofit hospital margins, Fitch reports

Due to ongoing inflation and higher labor, supply and capital costs, nonprofit hospital margins will see further erosion, Fitch reported July 19. 

Nonprofit hospital margins already took a hit during the pandemic. 

"With ongoing margin pressures as a result of the pandemic and materially higher inflation, providers will be compelled to attempt to secure much higher rate increases from their commercial payor," according to the report. "This will not be easy, as commercial payors are also facing similar inflationary pressures and consolidated in recent years, resulting in increased leverage over health systems."

The report continues that it does not expect CMS to adjust Medicare or Medicaid rates due to inflation. 

Additionally, it may take years for providers to return to the margins of 2019, pre-pandemic, with many providers currently reporting much thinner margins. 

Fitch says some providers may benefit from seeking rate increases. The report cites Burlington-based University of Vermont Health Network and Rutland (Vt.) Regional Medical Center as an example, which each asked their state for a nearly 20 percent rate increase. While Rutland Regional's request was denied, it has yet to be announced whether UVM's request was granted. 

Mergers and acquisitions are being fueled by this inflation, according to the report. However, healthcare regulators are becoming increasingly stringent with these deals to avoid monopolies. 

Inflation of supplies, higher debt financing, and regulators denying or examining mergers and acquisitions has led to delays in many hospital expansions or renovations. 

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