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Hospitals need ‘transformational changes’ to stem margin erosion

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kupicoo via Getty Images Dive Brief:

Nonprofit hospitals are reporting thinner margins this year, stretched by rising labor, supply and capital costs , and will be pressed to make big changes to their business models or risk negative rating actions, Fitch Ratings said in a report out Tuesday.

Warning that it could take years for provider margins to recover to pre-pandemic levels, Fitch outlined a series of steps necessary to manage the inflationary pressures. Those moves include steeper rate increases in the short term and “relentless, ongoing cost-cutting and productivity improvements” over the medium term, the ratings agency said.

Further out on the horizon, “improvement in operating margins from reduced levels will require hospitals to make transformational changes to the business model,” Fitch cautioned.

Dive Insight:

It has been a rough year so far for U.S. hospitals, which are navigating labor shortages, rising operating costs and a rebound in healthcare utilization that has followed the suppressed demand of the early pandemic.The strain on operations has resulted in five straight months of negative margins for health systems, according to Kaufman Hall’s latest hospital performance report.Fitch said the majority of the hospitals it follows have strong balance sheets that will provide […]

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