Fitch sees nonprofit hospitals as mixed bag in Q3 report

Dive Brief:

• Financial soundness of not-for-profit hospitals  and health systems was a mixed bag in the third quarter of 2018, with 11 security ratings upgrades and 11 downgrades, according to Fitch Ratings’ latest report.
• Three organizations — Aurora Health Care, Indiana-based Deaconess Health System and University of Colorado Health—saw their ratings rise from AA-  to AA. Two others — Gundersen Lutheran in Wisconsin and Holland Community Hospital in Michigan — were upgraded to AA-.
• Among the downgrades were Dignity Health and MedStar Health, both of which slipped from A to A-.

Dive Insight:

The number of positive rating watches declined from the previous quarter to none, while negative ratings watches dropped to one. Positive ratings outlooks increased by three to 20, while negative ratings outlooks shrank to 15.

While not-for-profits hospitals led Q3 public finance rating activity, the pace of upgrades and downgrades appears to be leveling off, the report says.

“Fitch Ratings completed the initial implementation of its ‘U.S. Not-for-Profit Hospitals and Health Systems Ratings Criteria’ as of July 9, 2018, during which time Fitch reviewed just under one-half of the total acute portfolio (updates: 28%, downgrades: 20%),” the report says. “During the remainder of the third quarter, rating changes in the sector began to revert to historical norms.”

A September Fitch report showed declining operating margins across the hospitals rating spectrum, indicating continued stress in the sector. Nonetheless, the median rating for Fitch’s rated credits remained an A, with hospitals showing improvements in all key balance sheet metrics.

Nonprofit hospitals face the same pressures as for-profit hospitals, with smaller volumes, cuts in federal reimbursements and rising costs. Community nonprofits in states with Medicaid expansion also have more Medicaid patients and fewer with private insurance, meaning lower payments for care.

Earlier this month, CMS released its final Outpatient Prospective Payment System rule for 2019, which gets rid of the pay discrepancy Medicare beneficiaries face when they visit a hospital-owned outpatient center instead of an independent doctor’s office. The agency claims the change will save Medicare $ 380 million next year alone. The American Hospital Association has promised to sue to prevent the move.