(Bloomberg) -- Two major ratings firms disagree on how US hospitals will fare in the coming year.
Fitch Ratings said it’s too soon to call a rebound in the not-for-profit institutions’ recovery and maintained its deteriorating outlook on Tuesday. The caution comes a month after Moody’s Investors Service upgraded its forecast on the sector to stable from negative.
Next year “will remain challenging and will be yet another make or break year for a sizable portion of the sector,” senior director Kevin Holloran wrote in a note. He and co-author Mark Pascaris predict that downgrades will once again outpace upgrades in 2024.
“The industry continues to struggle with labor shortages and salary/wage/benefit pressure that is still compressing margins for a sizable portion of the sector, even as other core credit drivers, specifically volumes and overall liquidity, begin to improve,” they wrote.
In contrast, Moody’s cited easing costs and higher reimbursements from insurers as reasons for its sunnier viewpoint. Analysts expect operating cash to rise, which would allow more hospitals to undertake capital and program investments without compromising liquidity, the group said in a report.
Read more: Nonprofit Hospitals Upgraded to Stable by Moody’s as Costs Ease
The opposing views show the difficulty of assessing a sector that is still striving to adjust to a landscape of sharply higher labor and supply costs and the need to attract new patients as they choose more of their care outside of hospitals. Fitch, Moody’s as well as Municipal Market Analytics had a negative outlook on the sector this year.
MMA deemed Moody’s rosier 2024 forecast “premature.” Bank of America also has a negative credit outlook on the health care sector next year. S&P Global Ratings is expected to weigh in on the hospital sector this week.
While Fitch points to measures of improvement, including increased revenue, “significant improvement” in labor productivity and a more comprehensive rebound in operating income would be required to boost the outlook to neutral, Fitch said. Holloran said his team was unanimous in maintaining the outlook, which encompasses the whole sector, not just the approximately 250 issuers Fitch rates.
“Most of us thought 2023 would be better, and it was compared to 2022, but not as fast and not as strong” as anticipated, Holloran said in an interview. “We still think it’s going to be a slow slog through 2024.”
(Adds more detail in penultimate paragraph and analyst comment in last paragraph.)
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