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Analysis

Fitch: Some Nonprofit Hospitals Vulnerable to Continued Coronavirus Market Fallout

By Jack O'Brien  
   March 30, 2020

The ratings agency stated that markets are "likely to remain very volatile."

Some nonprofit hospitals are still vulnerable to continued market fallout related to the spread of coronavirus disease 2019 (COVID-19), according to a Fitch Ratings report released Monday afternoon.

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.

"The good news is that on average, hospitals have funds deep enough to fund about 200 days of operations on average if needed with higher rated systems able to fund operations well in excess of this," Kevin Holloran, Fitch Ratings senior director and leader of the firm's not-for-profit hospital and healthcare group, said in a statement. "Even with the equity markets 30% off of peak levels seen just weeks ago, the median loss of roughly 30 days cash on hand is not an immediate concern yet for most operators given the ample liquidity these hospitals have. Continued market losses would likely weaken key liquidity metrics and ultimately pressure some ratings, particularly for more financially challenged hospitals."

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

Forward looking, Fitch stated that most providers have portfolios that remain credit positive and have funds for "about 200 days of operations" on average.

Still, due to widespread market volatility, Fitch projected provider performance through a stress-test simulation of additional market declines. The ratings agency stated that its "middle scenario," a 30% decline in equity prices for a fully invested equity portfolio, is "currently in play."

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

The report about the nonprofit provider sector was released days after S&P Global Ratings revised the outlook for the nonprofit acute care sector from stable to negative due to the "possible prolonged" impact associated with the spread of COVID-19.

The report came less than two weeks after Fitch 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.

On the highest end of Fitch's ratings forecast, the COVID-19 outbreak might eliminate earnings for the payer industry for 2020.

Related: COVID-19 Impact: S&P Revises Outlook for Nonprofit Acute Care Sector to Negative

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


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