Although the U.S. nonprofit hospital sector remains stable, these facilities will face operating headwinds as "significant ongoing" expense and revenue pressures will likely continue throughout 2022, according to a new report from S&P Global Ratings.
The top near-term operating risk for nonprofit hospitals is labor expenses and shortages, S&P said. Labor is the highest expense category for healthcare organizations and even minor disruptions can be costly.
"Although the healthcare industry has always had periods of staffing challenges, those ignited by the pandemic are more widespread, severe, and expensive to address," the report said.
In addition to labor, supply inflation will have a large dampening effect on margins, according to the report. Hospitals must pay higher prices for personal protective gear and other in-demand supplies as the COVID-19 pandemic continues.
S&P noted that depending on the severity of these operating pressures, there could be increased stress to credit quality for those with narrow margins or less balance sheet flexibility.
Overall, S&P said it expects operating margins to be weaker in 2022 for many providers when compared with 2021. However, the credit rating agency expects many organizations can navigate these challenges because they have healthy balance sheets, could see improved revenue yield, and healthcare services will remain in demand.
"S&P Global Ratings maintains its sector view as stable given healthy balance sheets for many providers, effective leadership that has continued to pivot and use data and technology to manage near-term challenges, and our view that demand for services and improved revenue yield will continue to support hospitals, although likely from a new baseline and potentially with some unevenness as COVID-19 variants remain present," S&P said.
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