'It remains to be seen' whether acute care for nonprofit hospitals has peaked, Fitch says

Fitch Ratings has released a new report in response to questions from U.S. nonprofit hospital investors about whether acute care has peaked or can be improved.

Four takeaways:

1. Fitch said acute care, nonprofit hospitals experienced across-the-board deterioration of operating margins in 2017, and the trend is expected to repeat this year. But acute care, nonprofit hospitals' balance sheet metrics, such as days cash on hand, cash to debt and debt to capitalization, are at an all-time high.

2. Amid declining operating margins, large system providers plan to reduce costs and inefficiencies and are rethinking care delivery, according to Fitch Senior Director Kevin Holloran. He said smaller providers face greater challenges because they "are characteristically less able to trim expenses and typically unable to negotiate higher rates from commercial insurers in their markets."

3. Fitch concluded: "It remains to be seen whether we are at a peak or if there is further room to improve."

4. However, the ratings agency is certain of one thing: Nonprofit hospital systems will continue to consolidate. Fitch said investors have asked it whether increased size and scale through consolidation is advantageous as far as credit ratings.

"Size and scale are 'better' for a hospital's rating if its enhanced size and scale means improved operations, stronger balance sheets and more market essentiality," said Mr. Holloran."Conversely, a hospital getting bigger just for the sake of getting bigger at times can lead to an initial dip in operating profitability as the two or more organizations come together."

Access the full report here.

Editor's note: This story was updated on Nov. 19.  


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