Nonprofit hospitals' finances will get worse before they get better, Fitch says

There is no quick fix to the financial difficulties facing nonprofit hospitals and health systems, but some providers will start to break even at some point in 2023 amid revenue growth and easing expenses, Fitch Ratings said in a March 2 report.

Median nonprofit financial performance in fiscal 2022 showed "materially weaker profitability and liquidity" compared with fiscal 2021 as expenses increased and investment values declined, the report said. That data will deteriorate as systems reporting later fiscal 2022 results bring down the average.

And even though there will be some improvement this year, there is no easy road ahead despite some easing pressure, Fitch said, adding that "margins are not expected to return to pre-pandemic levels for quite some time."

Key metrics in fiscal 2022:

       1.Operations are still profitable, but the initial fiscal 2022 median margin eroded to barely breakeven, 0.9 percent, from 3.8 percent for the same cohort in fiscal 2021.

       2.The median year-over-year increase in salaries, wages, fees and benefits was 11.1 percent.

       3. The median decline in investment values was 7 percent.

       4. The median days of cash on hand was 221 compared with approximately 266 in fiscal 2021.

Labor shortages will continue to keep upward pressure on wages until contract labor costs materially lessen, Fitch said. The rating agency also expects future capital projects to be modest, with a focus on outpatient and technology investments.

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