Why Fitch outlook on nonprofit hospitals says there are 'ample reasons for optimism'

hospital
Drops in nonprofit health system and hospital profitability are not expected to be as sharp or as broad as they were in the previous two years, the report said. (Getty/peterspiro)

Financial projections for nonprofit hospitals have been decidedly gloomy over the last several years.

And while a new special report from Fitch Ratings says it expects nonprofit hospitals and health systems to continue showing declining profitability, it does—finally—offer some positive news. 

Those drops in profitability are not expected to be as sharp or as broad as they were in the previous two years, the report said.

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"It is Fitch's opinion that the current stresses are just different pressures in a long line of challenges that the sector has weathered and successfully navigated in the past," the report said. "There are ample reasons for optimism."

RELATED: Fitch: Margins getting harder to meet at nonprofit hospitals

What are those reasons for optimism?

  • Many organizations entered the healthcare exchanges, starting their own provider-sponsored health plans or acquired health plans. Those moves resulted in weaker operating margins, but many have since divested or scaled back exchange plans and better integrated provider-sponsored health plans.
  • There was heavy IT investment between 2015 and 2017 in EMR systems, which puts many organizations past the heavy spending and disruption phase.
  • Hospitals and health systems have been adjusting to falling inpatient volumes and shifting their construction strategies.
  • Management teams are better prepared to weather the storm and, having "learned arguably painful operational lessons," have incorporated lean work practices to improve efficiency and reduce costs.

RELATED: Moody's: It doesn't look like things will get much better for nonprofit hospitals in 2019

However, there are still plenty of reasons for skepticism, including expectations for weaker reimbursement, competition from nontraditional entrances and the continuing pressures on the margins, including from the shift from fee-for-service.

Still, the report points to preliminary operating margin data from fiscal 2018 that shows the beginning of what appears to be a stabilization in the sector: "To be clear, while not fully analyzed and not directionally comparable, the early data study gives us yet another reason for optimism."

Overall, despite the "heavy headwinds," the sector has been successful at maintaining generally consistent margins.

"It is our opinion that the acute care sector will begin to find its operational footing during calendar 2019, building on successes that some in the sector have already achieved," the report said.

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