Fitch: Labor, supply chain challenges increase for hospitals

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Although U.S. healthcare and pharmaceutical companies have maintained solid credit metrics throughout the pandemic, with 2021 third quarter results in line to be slightly better than expected for most sub-sectors, labor inflation and supply chain disruptions have led to higher costs and potentially lost revenue, Fitch Ratings reported Nov. 19. 

Staff shortages in healthcare have led to higher wages, staff burnout and higher rates of turnover. Rate increases within labor tend to lag given contract renewal processes. ​​Consequently, cost mitigation efforts will initially focus on identifying cost savings in other areas, more efficient utilization of existing staff and renewed efforts on recruitment.

Certain providers expect this to remain a challenge, but expect improvements as unemployment benefits expire and evidence points toward robust recruitment into the fourth quarter. 

Supply chain challenges are also becoming increasingly significant in the sector. The most immediate effect of these challenges is higher transportation costs for distributors and customers, with some issuers increasingly discussing materials and inputs sourcing challenges with the medical device sub-sector. 

Despite the chance for supply change problems to further challenge revenue, many issuers expect these issues to begin to subside in mid-2022.

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