Nonprofit hospitals will stabilize this year, Fitch predicts

U.S. nonprofit hospitals continue to face headwinds and pressures on operational performance, but they are expected to see more performance stability as 2019 moves forward, according to Fitch Ratings.

The agency notes that nontraditional players such as Amazon are entering the healthcare space and will most likely change the way patients interact with the sector. Therefore, Fitch said it predicts hospitals will not be as concerned with "leakage" outside the provider system as they are with "steerage" into the provider's care delivery system.

The agency also points out that hospitals are pressured financially as commercial payers make up less of hospitals' revenue and the number of Medicare enrollees increases.

"With an estimated 10,000 people set to turn 65 years old every day over the next decade, the spread between the profit-generating commercial business and break-even to unprofitable government payers will continue to shrink," Fitch senior director Kevin Holloran said in a news release.

However, hospitals that see Medicare usage increase and successfully absorb reimbursements for those services "will find themselves well positioned for the future," he said.

Regarding profitability, operating margin percentages for nonprofit hospitals and health systems are still declining, but at a slower pace, according to Fitch.

"Operating margin percentages for most hospitals are actually lower than those experienced during the Great Recession of over a decade ago," said Mr. Holloran. "What has yet to be determined is whether margins continue to fall over the longer term, or if this is the point where the sector's rally begins."

Overall, Fitch said the agency expects nonprofit hospitals to see better performance later this year, given the sector's historical success at maintaining generally consistent margins over the long term.


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