Fitch Ratings has changed the four key rating drivers for U.S. nonprofit hospital and health system revenue debt.
Here are five things to know about the changes.
1. The new criteria focus on the following rating drivers: revenue defensibility, operating risks, financial profile and asymmetric additional risk considerations.
2. Some market participants have criticized Fitch's view of revenue defensibility — which entails an assessment of an organization's exposure to demand volatility and its pricing model's capacity to maintain operating profitability and address cost pressures — as too harsh. However, Fitch said it is unlikely to change its view on revenue defensibility in the near future.
3. "Acute care providers already have very little negotiating room with commercial and traditional payors," Kevin Holloran, senior director and head of Fitch's U.S. nonprofit healthcare group, said in a statement. "This could further impair the ability of some not-for-profit hospitals and health systems to increase revenues in an environment where profitability is already likely to weaken over the course of the year." As such, the credit rating agency believes the acute care sector generally has "midrange" revenue defensibility.
4. Fitch anticipates about 15 percent of its roughly 300 ratings will be affected over time by the final criteria changes.
5. Along with the new methodology, the credit rating agency launched the Fitch Analytical Sensitivity Tool, which allows nonprofit healthcare organizations to measure their financial flexibility in various stress scenarios.
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