Report: Hospital credit ratings showed mixed progress in 2024

Editor's Note

Hospital credit ratings in 2024 reflected mixed trends, with downgrades continuing to outpace upgrades, though at a slower rate than in 2023, according to a January 22 report from Kaufman Hall. The organization cites 5 key takeaways:

• Downgrades narrowed but persisted. The number of downgrades dropped to 95 from 116 in 2023, while upgrades increased to 37 from 33. Expense pressures outpaced revenue growth, affecting hospitals across all sizes, from small independents to large academic medical centers. Regional downgrades were concentrated in California, the Pacific Northwest, New York, and Pennsylvania, with many facilities already in low or speculative-grade categories.
• Downgrades often reflected severe financial strain. Multi-notch downgrades highlighted severe financial distress. Some hospitals defaulted on debt. Recurring issues included weaker financial performance, reliance on government payers, and declining reserves.
• Upgrades were driven by consolidation. Most upgrades stemmed from mergers. Others reflected stronger financial performance, liquidity growth, and supplemental funding through Direct Payment Programs.
• Distressed borrowers faced multiple actions. Five hospitals that faced multiple 2024 downgrades amid deteriorating performance exhibited characteristics of “high-yield or speculative rated borrowers.”
• Industry outlook is improving. Rating agencies revised their outlooks positively, with S&P moving to Stable, Fitch to Neutral, and Moody’s maintaining a Stable outlook. However, labor pressures, government payer reliance, policy changes, and other challenges may still contribute to more downgrades in 2025. Affirmations are expected to dominate, providing stability as hospitals navigate these uncertainties.