Nonprofit healthcare will likely take years to recover, S&P says

The U.S. nonprofit healthcare system faces a very long road ahead to any potential financial recovery as it deals with persistent operating pressures and investment market volatility, S&P Global Ratings said in a December report where the agency also downgraded its sector view to negative.

"Meaningful improvement will likely take multiple years," the report said.

While challenges will remain on the investment side through 2023 as weaker cash flow and the need for capital spending amid higher construction costs restricts reserves, the main obstacle facing healthcare systems will be sustained labor costs, S&P said.

There have been some improvements regarding lower use of contract labor but "labor costs remain stubbornly high relative to pre-pandemic levels," the report said. And even as temporary labor costs may decline, providers have increased pay and compensation to attract and retain full-time nursing staff, measures that "will long remain part of the expense base."

"These labor pressures, while not accelerating, are also not improving at the rate initially expected and will likely be one of the biggest factors impeding cash flow and margins in 2023 and beyond," according to the report.

The S&P report adds to similar warnings from Moody's and Fitch Ratings last month.

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