Not-for-profit hospital industry may be past its financial peak, new report suggests

A new report by Fitch Ratings indicates that although health systems benefited from healthy cash flows and stock market windfalls—particularly in 2015 and 2016—their capital spending has remained relatively modest. The report also indicated not-for-profit hospitals’ and health systems’ profitability has continued its three-year decline.

A few more details of the report include:

  • 25 percent of the 200+ hospitals and health systems included in Fitch Ratings’ analysis had AA- ratings, up from 17 percent in 2017
  • Within the same time period, Fitch rated fewer hospitals and health systems as BBB+ or below
  • Fitch Ratings included two new criteria: cash to adjusted debt, and net adjusted debt to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), with adjusted debt referring to long-term debt, such as pension and lease obligations

The report indicated that some of the country’s roughly 1,300 critical-access hospitals may consider closing or becoming free-standing emergency rooms or urgent-care clinics. The higher federal cost-based reimbursement that previously supported them may fall short as admissions continue to decline and an increasing number of services move from the inpatient setting to an outpatient setting.

“While the outlook may not be promising for the financial viability of several organizations in the provider market, there are solutions to improve the financial position of your healthcare organization,” comments Healthcare Consulting Principal Mike Duke. Duke further stated that, “healthcare providers can focus on the following initiatives to enhance both qualitative and quantitative performance:

  • Realizing the benefits of consolidation (i.e., merger and/or acquisition transactions) 
  • Improving physician integration leading to improved financial outcomes
  • Enhancing Revenue Cycle performance that will drive significant annual net revenue gains 
  • Assessing service line margins to increase profitability
  • Analyzing managed care contracts, including reviewing opportunities for value based reimbursement”

Baker Tilly is currently assisting various types of healthcare providers with these, and many other, initiatives, to both protect and enhance their value. .

For more information on this topic, or to learn how Baker Tilly healthcare specialists can help, contact our team.