Hospitals' latest financial results point to the beginning of a slow and sustained recovery, Fitch Ratings said in an Aug. 12 report shared with Becker's.
Liquidity has held steady for the sector since Fitch's last update and leverage has improved substantially, according to the report. However, year-over-year improvement still begins and ends with acute labor challenges.
"The labor picture has been on an upward trajectory for the last year with less usage of external contract labor, lower pricing per hour compared to calendar 2022 and a higher number of new hires over 'leavers,'" Kevin Holloran, senior director and sector head at Fitch, said. "Some of the labor improvements can be tied to near universal higher levels per capita of salary, wage and benefits, changes healthcare leadership has been very happy to make."
Despite the steady improvement in financial trends, certain industry challenges remain, including elevated labor costs and the fundamental disconnect between revenue generation and expense requirements that may be here for the long term.
Fitch said it remains unclear whether nonprofit hospitals are now in a "new normal" of long-term lower than historical operating margins, or if 2024 will see a bigger step forward to something more akin to long-term performance.
Operating margins are still far below the pre-pandemic "magic number" of 3% and the jury is still out on a permanent reset in the 1%-2% range.
"We are still another year away from some level of more predictive 'normalcy' in the sector, though 2025 medians will show continued operational improvement, with liquidity and leverage largely unchanged," Mr. Holloran said.