Of all the challenges facing the healthcare sector in 2014, maintaining profitability will be the most pressing, according to a report from Fitch Ratings.
Hospitals represent the largest category of healthcare spending in the U.S., and their profitability will be at risk for the foreseeable future as Medicare and Medicaid are a "perennial focus of deficit reduction negotiations," according to the report.
However, hospitals and other providers are looking at various strategies to preserve their operating and EBITDA margins. Fitch said operational strategies — increased physician employment, investment in outpatient service lines and joint ventures with other providers in the continuum of care — require "minimal capital investment" and could help credit ratings. But as capital requirements and strategic complexity increase, so does risk to a provider's credit profile, Fitch analysts said.
Fitch rates many for-profit hospital operators, and the rating agency said the large-scale, horizontal consolidation from the past year, like Dallas-based Tenet Healthcare Corp. acquiring Vanguard Health Systems, will lead to "cost synergies," which will offset the effects of debt financing.
The Patient Protection and Affordable Care Act also appears to be a margin savior for some healthcare providers next year, Fitch analysts said. Hospitals and health systems have absorbed Medicare cuts and other negative payment pressures, but Fitch believes the health insurance expansion will finally help providers financially. "Healthcare providers, specifically acute-care hospitals, will benefit the most from the increase in the insured rolls because of lower levels of uncompensated care, which is a sizable financial burden for the hospital industry."
However, Fitch noted there are still weak volumes throughout the sector.
More Articles on Fitch Reports:
Fitch: Hospitals in States Not Expanding Medicaid Face Dire Financial Fate
Fitch: Political Bickering Over PPACA Only Hurts Healthcare Industry
Fitch: 20 Statistics on Hospital Financial Margins