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Outlook steady for nonprofit health care

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Financial stability for nonprofit health-care systems will continue into 2008, though an enduring resource gap between large and smaller hospitals may lead to consolidation, a new study says.

The stable financial outlook for 2008 is the result of several factors, including low capital costs, strong investment returns, rate increases from managed-care companies and improvements in efficiency, says the study by Fitch Ratings on nonprofit health care.

Capital spending reached record levels in 2007, the study says, and is expected to maintain momentum in the coming year.

Much of that spending was for information technology, the study says, accounting for 20 percent to 30 percent of total capital spending at many hospitals.

The study attributes that increase to recent trends toward a more consumer-oriented experience that requires bigger investments in technology and facilities.

The resulting drive to buy may cause consolidation in 2008 and beyond, the study says, because large health-care systems usually have easier access to financing than do smaller, freestanding hospitals.

As a result, smaller groups may be forced to enter into partnerships or mergers to finance the purchases they need to stay competitive.

Nonprofit hospitals are facing increasing governmental scrutiny of their tax-exempt status, a trend the study predicts will continue in 2008.

As a result, many hospitals have begun to expand and promote their charity-care policies.

In the face of that increased scrutiny, fiscal transparency is advisable, the study says.

Most nonprofit health-care systems have not felt the effects of the recent credit crunch, the report says, in part because of traditionally conservative investment practices.

Yet the subprime mortgage crisis and the resulting loss in tax revenues could lead to a freeze on government Medicaid financing in 2008 that would allow only small increases in the rates that can pad hospital bottom lines.

Fitch Ratings is a global credit rating agency with headquarters in New York and London.

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