Fitch Ratings has maintained its stable rating outlook for US nonprofit hospitals and health systems and said it expects to keep it stable for the remainder of the year.
While the rating outlook remains stable, Fitch revised the sector outlook to negative in March due to adverse effects from the pandemic and said it will maintain the negative sector outlook. Sector outlooks reflect business and economic conditions and while often correlated with rating outlooks they are more sensitive to changes in the economy.
From March 15 to July 31, 10 percent of rating actions were downgrades and 3 percent were affirmations with an outlook revision to negative, according to Fitch. Eighty-four percent were affirmations without outlook revisions.
Additionally, as of July 31, 85 percent of nonprofit hospitals held a stable outlook.
Fitch warned that there may be more negative rating actions in the second half of the year, but also said that most hospitals have a cushion to absorb some volatility at their current rating.
The sector remains negative because of changes in consumer behavior and potential payer-mix deterioration given the job losses and "bleak outlook for the overall economy."
"Utilization may be weak in the coming quarters, but ultimately, the majority of healthcare usage in the US is of a nondiscretionary nature, protecting most hospitals’ revenue streams," Fitch said. "Management teams will adjust expenses to match the new revenue reality, although that may not be enough, particularly if the pandemic's disruption outlasts government stimulus funds in 2021."
Read the full report here.