Nonprofit hospitals showed notable financial improvement in early fiscal year 2024, but strong liquidity will be “crucial” to navigate ongoing labor cost pressures, potential Medicaid reimbursement cuts and broader economic uncertainty, Fitch Ratings said in a March 26 report.
Hospitals with fiscal year ends in the first half of 2024 reported a median operating margin of 1.2%, rebounding from -0.5% in 2023. The improvement was largely driven by a decline in staffing costs — particularly contract labor — as hospitals stabilized their workforces and reduced reliance on expensive temporary staff. Labor costs as a share of total operating revenue fell from 55.4% to 54.5% year over year.
Despite the modest cooling in labor costs, operating expenses still rose 6.9% year over year, due to wage inflation and ongoing staffing shortages. Fitch expects workforce development to remain a top priority, with continued investments in retention, recruitment and training critical for long-term sustainability.
Revenue growth also bolstered hospital performance, with median revenue rising 9.1% among early 2024 reporters. Higher patient volumes, improved payer contracts and stronger revenue cycle management contributed to the gains.
However, Fitch cautions that while margins have improved, nonprofit hospitals’ overall financial health remains well below pre-pandemic levels. Liquidity remains a key factor in credit quality and operational resilience.
Hospitals’ median days cash on hand remained at about 220 days, while the median cash-to-debt ratio improved to 178.5% from 170.2%. Fitch emphasized that these liquidity cushions will be critical as hospitals prepare for potential Medicaid policy changes and economic volatility.
The report noted a slight increase in median Medicaid reimbursement as a percentage of gross patient revenue, rising from 15.9% in 2019 to 16.6% in 2023, holding steady at 16.2% for hospitals with early 2024 fiscal year ends. Meanwhile, median self-pay reimbursement declined, falling from 2.8% in 2019 to 2.0% in 2023, and further to 1.8% for early 2024 FYE hospitals.
“These changes are partly due to Medicaid policy changes and Affordable Care Act expansion in several states. Federal budget cuts that may decrease Medicaid reimbursement and increase uninsured care would reduce hospitals’ ability to recover operating costs,” Fitch said in the report. “Providers, particularly those with a higher share of Medicaid patients, could cut services, close locations, or reduce staff.”
For hospital leaders, the message is clear: liquidity is no longer just a safety net — it’s a necessity for stability in an increasingly volatile landscape.
