Ratings agencies have pessimistic outlook for hospitals

Even as the economic recovery and the Affordable Care Act continue to take hold in much of the U.S., non-profit hospitals still face a pinched fiscal climate.

The three major credit ratings agencies have all given the healthcare and hospital sectors negative outlooks for the 2015 calendar year, Reuters reported.

Standard & Poor's forecast more ratings downgrades than upgrades for 2015, and added that 2014 would have been worse for hospitals if there had not been such aggressive merger and acquisition activity.

"The negative pressures facing most providers are widespread," Martin Arrick, services analyst with Standard & Poor's, told Reuters. "Many providers will not be able to adapt."

Most providers are phasing out fee-for-service payments in favor of bundling or other forms of payment where new patients do not boost revenue as readily, according to Reuters. Meanwhile, years of prior reimbursement cuts have forced hospitals to cut inefficiencies from their business operations.

Meanwhile, Moody's Investors Service forecasts another 18 months of weak performance, although larger healthcare systems will likely fare better due to the competitive edge their size gives them.

Earlier this year, Moody's observed that hospital revenue growth was at its slowest since the onset of the Great Recession seven years ago, expanding at a rate of less than 4 percent per year. It also noted that despite putting extensive cost-cutting measures in place, expenses still outpace revenue growth.

"The largest hospitals are getting stronger, while the smaller hospitals get weaker," Moody's senior analyst Daniel Steingart told Reuters.

Fitch Ratings also offered a negative outlook for the non-profit hospital sector, but said the ratings outlook for the sector is stable as a whole. "The vast majority of rating actions and outlooks in 2015 expected to be affirmations and stable, respectively," Fitch said.

To learn more:
- read the Reuters article
- here's the Fitch report
- check out the Moody's report (.pdf, registration may be required)