Nonprofit hospital rating downgrades outpaced upgrades in the last year, a trend that is expected to continue although the pace of downgrades is slowing, according to an Aug. 7 S&P report focused on nonprofit acute healthcare medians in 2023.
"We continue to affirm the vast majority of our ratings; however, a negative bias on rating actions remains," states the report. "Those actions are generally due to persistent strained cash flow with balance-sheet metrics that no longer provide adequate cushion, although there are other reasons and various nuances."
In 2023, the ratio of downgrades to upgrades was 3.8 to 1, and halfway through this year the ratio has changed to 3.0 to 1. Last year, 88% of the downgrades were in the 'A' or lower category. There were seven upgrades with four based on credit quality improvement. The remaining three upgrades were boosted by consolidation with a health system that had stronger credit.
'AA' ratings dropped 1% while 'A' ratings increased 2% year over year in June, "indicating some slight credit quality weakening at the higher end of the rated universe," according to the report. The most common rating in the last year was 'A.'
There has been meaningful improvement in the outlook revisions this year. Most revisions brought hospitals into a stable outlook, with the ratio of unfavorable to favorable revisions being 0.8 to 1 halfway through this year. Last year, the unfavorable to favorable outlook revisions were 2.6 to 1 midyear.
S&P reported seeing capital spending and debt increase in 2024 while days cash on hand dropped below 200 for the first time in a decade and cash flow stayed below historic levels.
"Given these factors, combined with the higher percentage of negative outlooks, we expect some ratings will still be negatively affected but this will hinge in large part on the pace of general recovery trends in the next year or two," states the report.