After aggressively shifting investments to stocks in the bullish 1990s to keep money-losing operations afloat, nonprofit hospitals face a financial crunch as the economy sours, The Wall Street Journal reported May 31.
Hospital operating margins – operating profits divided by operating revenues – fell two-thirds between 1995 and 1999, bond-rating agency Fitch says.
In that same period, the bull market prompted hospitals to shift more of their money to stocks instead of more conservative investments in cash and bonds, the Journal said.
“A more aggressive investment strategy has been a savior for virtually all hospitals,” a Fitch report said last year.
But with stocks slumping, Fitch says that investment strategy could hurt hospitals.
Fitch and Standard & Poor’s have slashed hospitals’ credit ratings, forcing hospitals to pay more for borrowing at a time when they need to borrow to offset falling investment income.
“If the market turns down again, it could get ugly,” S&P analyst Liz Sweeney told the Journal, adding that hospitals may have to cut services or staff, or raise prices.