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Analysis

Due to COVID-19 Outbreak, Fitch Places 15 Hospitals on Rating Watch Negative

By Jack O'Brien  
   April 10, 2020

The rating action came just over a week after a Fitch report stated that some nonprofit hospitals are still vulnerable to continued market fallout related to the spread of COVID-19.

Fitch Ratings released a rating action Thursday that placed 15 nonprofit hospitals at Rating Watch Negative due to the ongoing spread of coronavirus disease 2019 (COVID-19).

The provider organizations that received a Rating Watch Negative have a total debt outstanding of $3.7 billion, according to Fitch, and remain at risk for continued operating margin pressures related to the pandemic.

"The Rating Watch reflects those ratings with the greatest risk of transition under the current coronavirus pandemic as reimbursement and overall expenses are expected to be significantly disrupted over the short term," Fitch stated. "The margin pressure is primarily due to the loss of revenue from elective medical and surgical volumes, resulting in weaker operating EBITDA levels through the first half of calendar 2020 and negatively impacting full year results."

Fitch stated that three main drivers for placing these health systems at Rating Watch Negative were weaker liquidity levels, weaker operating risks, and uncertainty about the effects of the federal government's $2 trillion stimulus package signed last week, which included a $117 billion stimulus package for hospitals.

Hospitals on Rating Watch Negative:

  1. Boone Hospital Center in Missouri
  2.  Care New England in Rhode Island
  3.  Ector County Hospital District in Texas
  4.  Erlanger Health System in Tennessee
  5.  Holy Redeemer Health System in Pennsylvania
  6.  Jennie Stuart Medical Center in Kentucky
  7.  John Fitzgibbon Memorial Hospital in Missouri
  8.  Lifespan Corporation in Maryland
  9.  Marietta Area Health Care Inc., dba Memorial Health System in Ohio
  10.  Pioneers Memorial Healthcare District in California
  11.  Regional West Health Services and Affiliates in Nebraska
  12.  South Nassau Communities Hospital in New York
  13.  Southeastern Regional Medical Center in North Carolina
  14.  Wayne Healthcare in Ohio
  15.  Wise Regional Health System in Texas

 

Fitch stated in its rating action that a Rating Watch Negative for hospitals could be removed if the agency "sees a lack of material impact from the coronavirus pandemic or a financial recovery that is viewed as sustainable."

Related: Despite Federal COVID-19 Stimulus, Many Hospitals Could Face Layoffs Within Two Months

The rating action came just over a week after a Fitch report stated that some nonprofit hospitals are still vulnerable to continued market fallout related to the spread of COVID-19.

The report indicated that half of Fitch-rated hospitals had invested between 10% to 40% of their portfolios in equities, which fell as the stock market suffered historic losses during the past three weeks as fears of the coronavirus affected the U.S. economy.

Compared to "more conservative counterparts," these nonprofit providers lost 10% to 25% more in portfolio value during the recent market downturn, according to Fitch. 

The ratings agency added that markets are "likely to remain very volatile," as hospitals deal with short-term liquidity issues and existing industry pressures.

Related: Fitch: Some Nonprofit Hospitals Vulnerable to Continued Coronavirus Market Fallout

Last month, Fitch also changed its ratings outlook for the broader healthcare sector from stable to negative, considering the continued market uncertainty created by COVID-19.

Fitch projected increased claims costs associated with the spread of the virus, which will diminish profitability and debt service metrics.

Related: Ratings Agencies Change Healthcare Outlook to Negative Due to Coronavirus

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


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