Why Fitch Has A Positive Outlook on Prime Healthcare Foundation

To receive a rating upgrade, Fitch wants to see evidence that Prime Healthcare Foundation has returned to an operating EBITDA margin of close to or better than 7%.

Fitch Ratings has affirmed its positive outlook on Prime Healthcare Foundation, an Ontario, California-based 501(c)(3) public charity healthcare provider with 45 hospitals in 14 states.

"The affirmation of the 'BBB' and maintenance of the Positive Outlook reflects PHF's very solid liquidity, despite market losses last year, moderate leverage, and Fitch's expectation that PFH's operating performance will recover in the 2023 fiscal year to a positive territory," Fitch wrote in its rating report. "The maintenance of the Positive Outlook is supported by management's report of the 1Q23 trend in both expenses and some volumes that are a contrast to the prior year, which ended with a negative operating EBITDA margin."

Fitch says an upgrade would require evidence that Prime Healthcare Foundation has returned to an operating EBITDA margin of close to or better than 7%, in addition to strong balance sheet ratios and liquidity levels.

"Historically, PHF's weak operating risk was based on the challenges of an unfavorable payor mix, dependence on supplemental payments, and the presence of several of its hospitals in competitive markets, and several of the individual hospitals with operating losses, further exacerbated by acquisitions of undercapitalized facilities," Fitch writes. "However, PHF had disposed two underperforming assets, and the strategy is now less focused on acquiring distressed hospitals, but rather directed at strengthening the system fundamentals through vertical integration of existing assets, supported by investment directed at ambulatory presence."