Fitch Ratings has revised its outlook on the U.S. not-for-profit hospital sector to negative from stable. The outlook revision reflects Fitch's observation and expectation of material weakening in several areas affecting hospital creditworthiness. Fitch expects that rating downgrades will exceed rating upgrades for the next 18 to 36 months.
While bond ratings contemplate a certain amount of performance variability due to business cycles and other reasons, the combined effects of investment portfolio losses, increasing uncompensated care, and higher capital costs are adversely affecting many hospitals' credit profiles. Further, state and federal budgetary pressures stemming from the economic downturn are anticipated to constrain governmental reimbursement programs, while the business sector is expected to continue to shift healthcare costs to its employees. These factors, coupled with projections for increasing unemployment over the next several months and declines in acute care utilization, are expected to depress operating profitability for the next few years.
In response to the events and conditions of the past several months, and in anticipation of continued economic and regulatory stress, most hospitals have taken steps to address the difficult operating environment's effect on creditworthiness by curtailing or deferring capital spending, reducing staffing to bolster profitability, and, in some cases, adjusting investment allocations to limit further equity losses. Fitch believes these actions, as well as the sector's substantial profitability and balance sheet strength built up over the past several years, should mitigate the brunt of the challenging headwinds for many hospitals.
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