Nonprofit healthcare capital spending has increased surprisingly even as the sector continues to deal with "tremendous ongoing pressures" that are likely to continue well into 2024, Fitch Ratings said in a July 25 report.
The increase in spending was particularly notable in health systems having "AA" and "BBB" ratings, where spending jumped 119 percent and 103 percent, respectively, as a percentage of depreciation expense, according to 2022 data.
While operating margins are seeing some small growth in recent months, the operating outlook is expected to remain deteriorating as labor costs and expenses continue to outpace revenue growth, a situation described as "unsustainable" by Kevin Holloran, Fitch's senior director and group head of not-for-profit healthcare and higher education.
"It remains very challenged, a little bit more challenged than we first thought," he said on a July 27 call to discuss the report's findings. "It will be a make or break year for many, with a transition period that will extend into 2024."
As well as getting labor costs and other expenses pressures under more control, the key will also be the amount of reimbursement health systems will receive, Mr. Holloran said.