S&P report may deliver more bad news for hospitals

For the second year in a row, all three major credit-rating agencies may agree on the financial outlook for notfor-profit hospitals. And the picture isn’t pretty.

Moody’s Investors Service and Fitch Ratings already have placed negative outlooks on the not-for-profit hospital sector. If Standard & Poor’s follows suit this week, the three agencies again will have forecast a negative outlook for the industry. S&P’s report is expected by Thursday.

Fitch, which last year issued its first negative outlook on the sector since 2009, said financial uncertainties remain for hospitals as the Patient Protection and Affordable Care Act is rolled out. Among those uncertainties are the ongoing legal challenges to the law, and the sector’s halting progress in shifting to new value-based payment models.

Most of the pressure will be on smaller hospitals and systems, as larger organizations can better take advantage of cost-cutting strategies, Moody’s said. But all providers will need to grapple with falling patient volume, a shift in their payer mix and costly investments in physician practices and information technology over the next 12 months.

Nevertheless, while the operating environment is discouraging, Fitch said it expects “the vast majority” of health systems to have their individual ratings affirmed rather than downgraded next year. It anticipates that hospitals will maintain their current level of profitability despite the proliferation of high-deductible plans— which could erase some of the gains from having fewer self-pay patients— and the CMS’ two-midnight rule, which has led to lower payment rates for short-stay patients.