In addition to the outlook projection, the ratings agency stated that the "recession-resistant nature of demand" will help credit issuers maintain financial flexibility next year.
The outlook for 2021 is stable for both healthcare and pharmaceutical companies, according to a Fitch Ratings report released Tuesday afternoon.
Fitch's outlook projects that "favorable pre-pandemic operating trends" remain intact for healthcare and pharmaceutical issuers, and while there is a solid demand outlook, threats to profitability are "expanding."
Still, the ratings agency states that the "recession-resistant nature of demand" will help credit issuers maintain financial flexibility next year.
"A solid demand outlook remains supportive of U.S. healthcare and pharmaceutical issuer credit profiles, but threats to profitability are expanding, including weaker pricing power in a recessionary environment," Megan Neuburger, a managing director at Fitch, said in a statement.
The Fitch report was released about one week after the ratings agency stated that the U.S. election results are credit-neutral for providers, insurers, and the broader healthcare sector.
This Fitch report lists two important factors to watch in 2021: the healthcare agenda of the incoming Biden administration and the pending case at the Supreme Court that could determine the fate of the Affordable Care Act (ACA).
In relation to pandemic relief, a consumer relief stimulus would indirectly benefit the industry, though Fitch did not consider a direct fiscal stimulus to healthcare companies in its base-case analysis.
The ratings agency states that the Biden administration is likely to pursue healthcare reforms that have more broad bipartisan support like balance billing legislation and drug pricing regulations, rather than a single-payer healthcare system that could threaten profitability for healthcare companies.
Additionally, Fitch states that a decision to uphold the ACA in California v. Texas would be favorable for the credit profiles of healthcare companies but outlined challenges should the law be overturned.
While there is the potential for a replacement law to be passed, Fitch stated that this could be difficult to achieve if the Democrats gain control of the Senate through the two runoff Senate races that will be held in Georgia in early January.
Currently, around 66% of Fitch-rated issuers have a Stable rating outlook, nearly 20% have a Negative outlook, and 10% have a Positive outlook.
2020 marked the sixth consecutive year of downward rating migration among the Fitch-rated group of issuers, with most downgrades caused by "idiosyncratic factors influencing credit profiles" instead of operational stress spurred by the ongoing COVID-19 pandemic.
Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.