Hospitals Inch Toward Recovery as Labor Woes Ease, Fitch Says

(Bloomberg) — US hospitals are crawling their way toward a recovery as the public sector slowly shakes off that last of its pandemic woes, according to analysts at Fitch Ratings.
Labor challenges in the sector have eased this past year, with most non-profit health-care systems reporting using less external contractors while new hires have outpaced workers who quit.
It’s a welcome sign after the spread of Covid-19 led to staff shortages and a decline in lucrative elective procedures, ramping up pressure on the hospital sector.
The 2024 median operating margin has risen to 0.4% using audited 2023 data, compared to just 0.2% in the prior fiscal year. Over half of not-for-profit hospitals and health-care systems rated by Fitch saw a positive operating margin in fiscal 2023. 
“Some of the labor improvements can be tied to near universal higher levels per capita of salary, wage and benefits, changes health-care leadership has been very happy to make,” wrote Kevin Holloran, senior director of US public finance at Fitch. 
Liquidity remained stable, with hospitals having about 211 days of cash on hand, a slight improvement from prepandemic levels. Cash-to-debt ratios improved year-over-year to 164%, amid lighter than normal debt issuance in 2023, according to the report. However, industry pressures in the sector still remain, including higher salaries, wages and other labor expenses. Long-term expenses could also overtake revenue generation down the line.
It’s unclear whether the sector is now in a “new normal” of long-term lower operating margins or if 2024 will usher in better long-term performance. Fitch expects operating income is likely to be more positive this year than last, boosted by one-time adjustments such as funding from the Federal Emergency Management Agency. 
“We are still another year away from some level of more predictive ‘normalcy’ in the sector, though 2025 medians will show continued operational improvement, with liquidity and leverage largely unchanged,” said Holloran.
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