Not-for-profit hospitals get a second negative knock from Fitch

The financial outlook for not-for-profit hospitals, for the second year in a row, isn't pretty, major credit-rating agencies agree.

Fitch Ratings this week joined Moody's Investors Service in placing a negative outlook on the not-for-profit hospital sector. If Standard & Poor's follows suit next week, it will be the second consecutive year that all three rating agencies have a negative outlook on the industry.

Fitch, which last year issued its first negative outlook on the sector since 2009, said uncertainties still remain for hospitals as the Patient Protection and Affordable Care Act is rolled out. Among those uncertainties are the ongoing legal challenges to the law as well as the halting progress the sector is making in transitioning to new, value-based payment models.

However, the agency said it expects

">the vast majority of health systems

to have their individual ratings affirmed, rather than downgraded, next year.

Hospitals are expected to maintain their current level of profitability despite the proliferation of high-deductible plans, which could erase some of the gains from having fewer self-pay patients, and the CMS' two-midnight rule, which is leading more short-stay admissions to be billed at lower outpatient rates.

Yet Fitch and Moody's drew a distinction between not-for-profit and investor-owned hospital groups. In a “positive surprise,” Fitch upgraded the ratings on both HCA and Universal Health Services by one notch, said analyst Megan Neuburger. The companies showed they were able to cut costs and control spending, but also had better-than-expected financial results throughout the year, thanks in large part to the ACA.

Moody's too placed a positive outlook on the for-profit sector, noting that earnings before interest, taxes, depreciation and amortization is expected to grow about 6.5% to 7% over the next 12 to 18 months. The deal-hungry chains also should see benefits from acquisitions.

Follow Beth Kutscher on Twitter: @MHbkutscher