Nonprofit hospitals’ 2024 financial performances are beating the prior year’s tough numbers, though even the stronger organizations remain “well below pre-pandemic levels,” Fitch Ratings said.
In a Thursday brief describing the financial profiles of its rated nonprofit hospitals, the agency attributed the year-to-year improvements to stronger revenues and volumes as well as slightly mitigated, but still pressured, labor spending.
Fitch said the median operating margin among hospitals with early fiscal year ends (often June 30) was 1.2%, a flip from the prior year’s -0.5%. The agency said it expects the calendar year 2024 median margin for the remainder of its rated hospitals “will at least be in line” with the former group.
“Persistent” labor pressures continue to push base salary and wage expenses upward by a median 6.9% among the rated hospitals, which Fitch said “would have been even higher without the sector’s ongoing efforts to recruit and retain talent, streamline operations and optimize supply chains.”
These helped nonprofit hospitals with early fiscal year endings reduce personnel costs as a percent of their total operating revenues down from 2023’s 55.4% to 54.5% in 2024, which Fitch also attributed to less reliance on contract labor.
“Fitch expects workforce development to remain a central focus for health systems to address labor shortages, enhance staff capabilities and maintain sustainable profitability levels,” the agency wrote.
On the other hand, early reporting nonprofit hospitals also saw a median rise in revenues of 9.1%, fueled by higher patient volumes, better revenue cycle management and greater success in payer contract negotiations.
Within the hospitals’ revenues Fitch spotted a slight year-over-year decline in median Medicaid reimbursement as a percentage of gross patient revenue, from 16.6% to 16.2%. Fitch considered that to be a sign of “relatively steady” Medicaid pay in light of decreased enrollment following the end of the public health emergency.
“In contrast, median self-pay reimbursement as a percentage of gross patient revenue has declined from pre-pandemic levels, dropping to 2.0% in 2023 from 2.8% in 2019, excluding children’s hospitals, and to 1.8% for hospitals with early 2024 [fiscal year end],” Fitch wrote in its brief. “These changes are partly due to Medicaid policy changes and Affordable Care Act (ACA) expansion in several states.”
Fitch went on to note an uptick in the rated hospitals’ capital spending, which is more often focused on fleshing out ambulatory networks and strengthening their IT capabilities.
Liquidity also strengthened among the hospitals and health systems. Median days of cash on hand was “stable at approximately 220,” though the organizations’ cash to debt inched up from 170.2% to 178.5%. Stronger liquidity lets hospitals brace for economic headwinds or uncertainties, Fitch wrote, which could soon include Medicaid cuts affecting patients’ coverage or hospitals’ reimbursement levels.
“Federal budget cuts that may decrease Medicaid reimbursement and increase uninsured care would reduce hospitals’ ability to recover operating costs. Providers, particularly those with a higher share of Medicaid patients, could cut services, close locations, or reduce staff,” the brief concludes.