Fitch Ratings report says hospital margins healthy--for now

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Money.

Non-profit hospitals had a very stable 2015 and first half of 2016 from a financial point of view, according to Fitch Ratings, but the company says the sunny forecast is not expected to last as organizations begin to feel the pressures from healthcare reform. 

The sector's median operating margin improved to 3.5 percent last year from 3 percent in 2014, Fitch Ratings reported. Pre-tax margins fared even better, improving to 10.3 percent from 9.7 percent. The improvements were seen throughout all ratings categories, Fitch said in the announcement. That's despite the fact that revenue increases slowed last year as the number of patients enrolled in Medicaid and through the state health insurance exchanges created under the  Affordable Care Act leveled off after 2014.

Median revenues rose 5.7 percent last year, compared to the 11.5 percent increase seen between 2013 and 2014. Capital spending rose slightly last year after hitting an eight-year low in 2014.

The report is in line with the forecast Fitch issued in late 2015, where it projected that the operating environment for non-profit hospitals would be stable. In a report issued last spring, Moody's Investors Service concluded that the margins among non-profit hospitals had completely rebounded from the lows of the Great Recession, although it forecast that there would be a moderation of the trend later in 2016.

Fitch officials also believe the rosy financial atmosphere is not expected to last. It raised concerns about the future in the report, including rising wages due to an improved economy and a greater need to hire doctors and other clinicians as part of a greater need for population health management.

The “(non-profit hospital sector) has a stable rating outlook, with issuers demonstrating stability across all rating categories. However, we maintain a negative sector outlook reflecting our expectation that many of the expected pressures from healthcare reform have not been diminished, only deferred," said Emily Wadhwani, director of Fitch's U.S. public finance group, in the statement.