After two years of falling margins, nonprofit hospital and health systems saw their operating margins improve in 2018, according to a new Fitch Ratings report.
Hospital and health system's median operating margins bounced back more than 10 percent in 2018 compared to 2017. The largest margin improvement came from the hospitals at the lower end of Fitch's rating spectrum.
"The improvement here is notable because these hospitals tend to be smaller, 'market taker' health systems that are less able to trim expenses," said Kevin Holloran, a senior director at Fitch. "The fact that the lower rated hospitals saw meaningful improvement is a good indicator that operational strength is returning to the sector, though the highs we saw in 2015 may be an unattainable high-water mark."
The median operating margin for the 220 nonprofit hospitals was 2.1 percent in 2018, compared to 1.9 percent in 2017. Within the median operating margin, providers with Fitch's "AA" rating saw their operating margins decline from 5.1 percent to 4.5 percent. While providers rated "BBB-" by Fitch saw margins improve from negative 1.2 percent to negative 0.7 percent.
Despite average margins for nonprofit hospitals increasing in 2018, Mr. Holloran warns hospitals that they need to remain focused on operational and clinical improvements.
"Not-for-profit hospitals are by no means out of the woods yet, with sector pressures likely to continue, but there appears to be light at the end of the tunnel in terms of longer-term stability," Mr. Holloran said.
Read the full report here.