Will not-for-profit hospitals have a stable 2012? Fitch says yes

Affirmations expected to account for most ratings activity

Fitch Ratings agency last week issued a "stable" outlook for not-for-profit hospitals and health systems in 2012, noting that the industry has been able to maintain profit margins despite constrained reimbursement increases and lagging patient volumes.

According to the outlook, Fitch expects affirmations to dominate rating activity in the sector next year, as hospitals continue to improve operating efficiencies and rein in capital outlays. However, the agency anticipates that 2012 Rating or Rating Outlook changes—which likely will be downgrades instead of upgrades—will affect hospitals and health systems that failed to control expenses amid recession-induced economic pressures.

Overall, Fitch predicts that hospitals' 2012 profitability metrics will remain consistent with 2011 performance, citing shared service consolidation, supply chain improvements, and streamlined operations. Meanwhile, the agency foresees another year of muted capital spending—mirroring 2010 and 2011—and escalating regulatory changes as the federal government continues rolling out the health reform law. Specifically, Fitch says it expects health reform to have a modest impact on credit ratings in 2012, but notes that hospitals likely will absorb revenue cuts before full implementation in 2014.

Fitch says mergers and acquisitions in the sector are expected to accelerate next year, as stand-alone facilities seek to use scale to drive greater efficiency in a tight reimbursement environment. The agency notes that systems with strong credit ratings typically have had market clout, robust clinical IT systems, integrated delivery platforms, and operate at multiple locations in one market or across numerous geographic regions.

According to Fitch, the agency could adjust its outlook to "negative" if the industry's profitability metrics erode—possibly because of reimbursement pressure or lower patient volumes—or if it faces unexpected regulatory changes, like Medicare funding losses or the Supreme Court's ruling on the overhaul (Fitch report, 12/15; Barr, Modern Healthcare, 12/15 [subscription required]).


Next in the Daily Briefing

What's the ideal hospital room? Renowned architect thinks he has answer

Read now

You May Also Like