Nonprofit children's hospitals stabilize profitability, but could face operational stress, Fitch says

U.S. nonprofit children's hospitals have stabilized profitability, but they may face operational stress, Fitch Ratings said in a special report.

The report showed that the median operating margin for nonprofit children's hospitals increased from 4.5 percent in fiscal year 2017 to 5.6 percent in fiscal year 2018. The boost is attributed to expense control initiatives as well as geographic and market share growth, according to Fitch.

The agency said operating stability in fiscal year 2018 also resulted in better liquidity metrics, even as median capital spending as a percentage of depreciation expense grew to 161.1 percent in fiscal year 2018 compared to 145.9 percent in the year prior. 

"The need for high quality, state-of-the-art services is a capital-intensive endeavor," Fitch Director Richard Park said in a news release. 

"Children's hospitals have effectively controlled expenses over the last year while expansion projects have been moderate in scope and focused largely on ambulatory and service-line growth," he added.

Still, Fitch said nonprofit children's hospitals face potential operational stress with possible Medicaid Disproportionate Share Hospital funding cuts starting Oct. 1, more competition and decreasing U.S. births.


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