Fitch: COVID-19 resurgence threatens nonprofit hospitals' margins, credit ratings

Fitch Ratings is the latest market watcher putting a spotlight on resurging COVID-19 and its likely impact on hospitals’ financials.

In a report published Friday, the credit rating agency warned that nonprofit hospitals and health systems in COVID-19 hot spots will likely see a negative hit to their margins “in the near to medium term.”

Much like the industry saw in 2020, these hospitals facing an influx of COVID-19 patients will need to increase spending on supplies and staffing. The latter of these is a particular pain point, as hospitals and skilled nursing facilities alike are contending with a lasting shortage of nurses “expected to continue into 2022, and likely much longer," Fitch wrote.

At the same time, COVID-19 cases are upending the expected return of elective procedures that could potentially boost these hospitals’ margins, the group wrote.

Postponement of nonemergent cases is not just coming from worried patients but from hospitals that are fielding a large number of COVID-19-positive patients in their facilities. Making matters worse, the nonprofits won’t be seeing additional federal stimulus checks nor other support that helped buoy their operations during 2021, Fitch wrote.

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The group said smaller, lower-rated hospitals will be less capable of fending off the rising expenses and declining reimbursement that comes with ICUs full of labor-intensive COVID-19 patients.

Highly rated hospitals, on the other hand, “should have sufficient financial cushion to absorb an increase in operating costs and a shift in volume type without meaningfully affecting credit,” Fitch wrote.

The credit rating agency’s red flags fall in line with warnings from other industry analysts and leading hospitals themselves.

Last week, for instance, Kaufman Hall reported that hospitals and health systems’ margin recoveries hit the brakes in July due to rising COVID-19 cases. Alongside escalating expenses due to staffing and high-intensity COVID-19 care, the group noted that consumers appeared to be again postponing elective and outpatient care, especially in hard-hit regions.

“We expect those impacts to deepen in the months ahead,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in an accompanying statement.

Major nonprofits like the Mayo Clinic and Banner Health noted in their most recent earnings that utilization still hadn’t reached pre-pandemic numbers and that recent rising numbers of COVID-19 cases could continue to exacerbate their financials.