Hospitals show decline in Fitch’s early 2023 analysis, but should improve (a little)

Nonprofit hospitals are making some progress financially, although the gains remain modest, according to Fitch Ratings.

Nonprofit hospitals are still showing declines in an early preview of 2023 results, but should rise into positive territory, Fitch Ratings says. (Image credit: ©Amazing Studios - stock.adobe.com)

Of course, it’s saying something that Fitch’s early projections for the 2023 calendar year continue to show operational declines, although they aren’t as steep as 2022.

Overall, Fitch expects the 2023 operating margins to rise into positive territory, albeit barely. The 2023 margins are expected to rise to 0.5% to 0.7%, which remains below pre-pandemic levels.

In 2024, Fitch projects margins should move up to 1.6%.

Hospitals are seeing some relief in their labor costs, which have risen substantially since the COVID-19 pandemic.

“Though many hospitals are still struggling to grow revenues due to lack of adequate staffing and skilled nursing bed unavailability, personnel costs are easing,” Kevin Holloran, senior director of Fitch Ratings, said in a statement. Holloran oversees Fitch’s analysis of nonprofit hospitals and health systems.

Some hospitals and health systems have yet to report their full 2023 results, but those reports will likely boost operating medians.

“Hospitals that report their results later in the year will reflect the comparatively more profitable months in the latter half of fiscal 2023, which will pull up Fitch’s full year medians,” Holloran said.

Nonprofit operating margins could return to near historical trends by 2025 to 2026, Fitch projects.

If nothing else, 2023 at least marks a turning point from 2022, Fitch projects. Many analysts have called 2022 the worst year financially for nonprofit hospitals in memory.

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In an interview with Chief Healthcare Executive® in December, Holloran said that even with some expected gains, many hospitals are going to continue to struggle. He said 2024 “is going to be another tough year for a lot of people.”

“There's no V-shaped recovery here, there's no ticker tape parade, nothing like that,” Holloran said in December. “We're still going to be really struggling for every dollar we make in the sector.”

Nonprofit hospitals and health systems typically have modest operating margins, but analysts say a margin of 3% allows organizations to pay their bills and also make investments in capital projects or expansion of services.

Hospitals need to have success in recruiting and retaining workers in order to stabilize their finances, Holloran said in December. While some health systems are giving their workers substantial raises, Holloran says if hospitals can avoid lengthy and costly labor battles and at least have some certainty in their costs, they’re better positioned for long-term planning.

More hospitals could have concerns with bond covenants in 2024, Fitch projects, and that appears to be a growing concern of hospital executives. With bond covenants, organizations agree to make progress on debts and maintain a certain level of financial performance.

“You don't see it very frequently, but it is a growing worry point for us,” Holloran said in December.

Analysts also expect to see more hospital mergers in 2024, as more struggling organizations seek a partner to keep the doors open.