Financial

Fitch: Not-for-profit hospital margins will stabilize in 2019

March 26, 2019 / TARA BANNOW 

Like it or not, healthcare providers have had to become a resilient bunch.

They’ve come back from all-encompassing changes like the introduction of the prospective payment system in 1983, the Balanced Budget Act in 1997 and 2013’s federal budget sequestration. Fast-forward to today’s challenges, and providers are once again struggling to regain their footing.

A new report from Fitch Ratings predicts they will.

“All things being equal, we’re just not going to keep seeing this plunge in operational losses,” said Kevin Holloran, a senior director with Fitch and author of the report.

Fitch projects the operating margins of not-for-profit healthcare providers will start to rebound in 2019, despite today’s disruption threats, declining commercial reimbursement and weak inpatient volumes. But don’t go thinking the report is rosy. It notes 2017 operating margins among Fitch’s not-for-profit healthcare issuers were lower than during the Great Recession, except for issuers in the AA category.

In recent decades, Fitch analysts found many not-for-profit providers’ margin declines were caused by one-time events like ill-fated forays into managed care or expensive information technology purchases. That’s one reason Holloran said he believes margins will rebound.

Fitch’s data show that’s already starting to happen. Preliminary numbers from fiscal 2018 show overall not-for-profit healthcare margins jumped to 2.2%, from 1.9% in fiscal 2017. The increase was among low-rated issuers, those in the BBB category.

But that’s not the whole story. In some respects, management teams are accepting the fact that they’re not in transition anymore.

“What we’re seeing is this is normal,” Holloran said. “It’s normal now to fight and uncover every last dollar of savings you can and every last revenue generation out there. This isn’t episodic fixes. It’s a daily grind.”

Providers that recover will have responded accordingly, the report said. They will start to see improvements from their short- and long-term cost-saving initiatives designed to respond to the ongoing transformation in healthcare delivery.

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Chris J. Stewart

Chris currently serves as Chief Operating Officer at Ortho Spine Partners. Prior to that, he was the assistant vice president and business unit leader of Medical Device Management for HealthTrust.

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