S&P report: Nonprofit hospital downgrades outpaced upgrades in 2023

Editor's Note

An S&P report published on August 7 revealed that downgrades of nonprofit hospital ratings outpaced upgrades in 2023, a trend expected to persist despite a slowing pace, Becker’s Hospital CFO Report August 12 reports. The report, which analyzed nonprofit acute healthcare medians, showed a downgrade-to-upgrade ratio of 3.8 to 1 in 2023, improving slightly to 3.0 to 1 halfway through this year. Most downgrades were attributed to strained cash flow and inadequate balance-sheet metrics.

Despite some improvement in outlook revisions, with more hospitals moving to stable outlooks, there remains a negative bias in rating actions. In 2023, 88% of downgrades were in the 'A' or lower category, indicating weakened credit quality. 'AA' ratings fell by 1% while 'A' ratings rose by 2% year over year, reflecting slight credit weakening at the higher end of the rating spectrum.

S&P also noted that capital spending and debt are projected to increase in 2024, while days cash on hand dropped below 200 for the first time in a decade. Cash flow remains below historic levels, suggesting continued financial challenges for many nonprofit hospitals.

The report anticipates that while some ratings may still face downgrades, the outcome will largely depend on the pace of general recovery trends over the next year or 2.