Hospitals face a rocky recovery to financial health, AHA says

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The American Hospital Association has released a blog on research it said confirms what hospitals and health systems have been saying: That 2022 was among the most financially challenging years the hospital field has experienced and that recovery remains challenging.

Fitch, Moody's and S&P Global Ratings released reports describing how nearly every metric of hospital and health system financial health declined in 2022, according to the AHA. Operating margins and earnings deteriorated significantly and days cash on hand declined. As a result, most agencies are reporting significantly more credit rating downgrades than upgrades.

Research from the Urban Institute released in August examined the financial vulnerability of hospitals and health systems throughout the pandemic. The study found that operating margins plummeted to negative 40% in April of 2020, underscoring how important federal support was for hospitals to remain financially viable during the pandemic, the AHA said.

Kaufman Hall's August National Hospital Flash report suggests that financial recovery may have slowed or reversed. Hospital volume lagged in July, which resulted in a slight decrease in financial performance month-over-month. The report also finds that some measures of uncompensated care have increased, which is likely linked to the millions who have been disenrolled from Medicaid as states resumed eligibility redeterminations on April 1.

WHY THIS MATTERS

These studies contradict the "false narrative from hospital critics who concentrate myopically on single point-in-time operating margins," Ben Finder said in the blog. Finder is the AHA's director of policy research and analysis, 

"These critics often cherry-pick a select few health systems to make sweeping generalizations about the financial conditions of all hospitals and health systems," Finder said. "As we look back on the last three years, it is clear that 2021 was the eye of the hurricane – a brief period of stability bookended by extreme volatility," Finder said. "Hospital critics frequently focus exclusively on a fleeting period of stability, ignoring other available data that show the real costs of cascading waves of illnesses, inflationary pressures, and skyrocketing expenses for drugs, labor, supplies and equipment."

THE LARGER TREND

In January, Fitch Ratings said credit ratings for the nation's nonprofit hospitals would be under threat this year due to investment losses and rising expenses eating into margins, according to a new report from Fitch Ratings. 

Moody's in March looked at the effect of rising interest rates on hospitals. Interest expense will rise 20% for most low-rated healthcare companies in 2023, Moody's predicted, and the metrics would further weaken, if rates continued to rise. The report looked at 47 healthcare companies in the United States and Canada rated B2 or lower with at least $1 billion of outstanding debt.

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org