Investor-owned hospital companies have improved both their free cash flow and their leverage metrics in the past 12 months, but some of the gains attributable to labor cost control might not be sustainable, Fitch Ratings said in a new report. Fitch's analysis of the six largest hospital companies found that leverage, defined as the ratio between debt and earnings before interest, taxes, depreciation and amortization for the past 12 months, improved from 5.74 on June 30, 2008, to 4.79 on Sept. 30, 2009.
Investor-owned hospitals improve cash flow: Fitch
Free cash flow, defined as cash flow from operations minus capital expenditures and dividends, totaled $2.07 billion for the 12 months ended Sept. 30, versus negative free cash flow of $143 million for the 12 months ended Sept. 30, 2008. Nearly all of that increased cash flow has been used to retire debt, Fitch said.
Fitch said it expects these metrics to continue to improve for another quarter or two before labor, supply and other costs resume growing at more normal levels and as bad-debt expense rises, squeezing the improved operating earnings that are fueling the improvements.
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