S&P: Nonprofit Healthcare Sector Stable But 'Delicately Balanced'

The ratings agency indicated that the sector could face challenges from a number of factors going forward.

The nonprofit healthcare sector remains stable, according to an S&P Global Ratings report released Thursday, though challenges to long-term sustainability linger.

S&P listed responsive management, financial flexibility, growing business profiles, and robust M&A activity as the sector's core strengths.

However, the ratings agency indicated that the sector could face challenges from a number of factors going forward.

"Given the myriad of forces, including legislative and policy uncertainty, evolving trends in the sector, and the likelihood that operating margins will remain at a new lower, but stable level," the report stated. "We believe that the sector's equilibrium and stability remain delicately balanced with the expectation that management teams must remain vigilant and proactive to sustain existing operating and business strength."

Health system and hospitals leaders must be ready to adapt to different challenges such as changes to reimbursement rates, expense growth, and stable but lower operating margins, the report stated.

Additionally, provider organizations continue to derive long-term benefits to credit stability from M&A activity, S&P found. Increased focus on orienting the provider business model to address the social determinants of health is another trend noted by the ratings agency.

The report did highlight the risks associated with the uncertain future of the Affordable Care Act as it endures legal challenges and proposals to implement a 'Medicare for All' system that would extend the current fee schedule to all patients.

Related: S&P: Nonprofit Operating Margins Improve but Pressures Remain

The report was released months after a previous S&P report found that nonprofit provider organization outlooks remain stable despite a decline in ratings actions, as well as a slight rise in negative outlooks and the decline in positive outlooks.

Nearly 90% of nonprofit health systems maintain a stable outlook, according to S&P, with 7% holding a negative outlook and 3% holding a positive outlook.

Similarly, almost 80% of nonprofit stand-alone hospitals have a stable outlook, 14% have a negative outlook, and 7% have a positive outlook.

Nonprofit health system rating actions in 2019:

Affirmations: 91%

Upgrades: 5%

Downgrades: 3%

Downgrades solely due to revised criteria: 1%

Related: S&P: Not-For-Profit Healthcare Remains Stable

Nonprofit stand-alone hospital rating actions in 2019:

Affirmations: 85%

Downgrades: 9%

Upgrades: 5%

Downgrades solely due to revised criteria: 1%