Dive Brief:

• Ascension Health, one of the largest hospital systems in the country, is facing negative outlooks from two credit rating agencies after the St. Louis-based health system posted consecutive operating losses in fiscal years 2022 and 2023.
• Fitch Ratings revised Ascension's outlook from stable to negative in late September, and S&P Global Ratings affirmed its negative outlook for the health system last week.
• Ascension’s operating losses occurred despite “real progress” from the health system to resume operating at more typical margins, including running productivity initiatives and addressing labor costs, according to the Fitch report. Ascension’s efforts were not enough to offset operating pressures that “more than erased the cost savings and revenue enhancements realized,” according to S&P.

Dive Insight:

The revised outlook comes weeks after the nonprofit health system posted a net loss of $2.7 billion and an operating loss of $3 billion during its fiscal year 2023. The faith-based system, which operates nearly 140 hospitals, has struggled to overcome high operating costs and sustained revenue challenges.

Like other nonprofit hospital operators, Ascension had experienced rising expenses despite cost containment efforts.

In a discussion of the fiscal year 2023 results, Ascension Chief Financial Officer Liz Foshage said Ascension struggled with continued staffing shortages, supply chain challenges and inflationary pressures.

“The American healthcare system is experiencing unprecedented operational and financial challenges, and Ascension is no exception to these larger trends,” Foshage said.

Still, Fitch affirmed the health system’s 'AA+' rating, based on Ascension’s historically strong operational profile assessment and sustained robust balance sheet, and noted it anticipated Ascension could once again generate a consistent operating margin of around 3% within the next several years. S&P concurred, predicting Ascension could return to profitability in fiscal year 2025.

Ascension also operates a diverse portfolio across “several key markets” which produces unique credit features not typically seen in the sector, according to Fitch. The ratings agency also said Ascension’s absolute net debt position — long-term debt inclusive of lease liabilities, minus unrestricted cash and investments — is “one of the most favorable of any of Fitch's covered health system credits” at negative $8.35 billion.

S&P concluded that Ascension has a long sustained track record of sound profitability. The ratings agency said it revised its outlook to negative when there were “heightened macroeconomic, labor, and staffing pressures that we believed could hamper the recovery plan.”

“While that did occur, we recognize that Ascension successfully implemented organizational changes and operating efficiencies that should bode well as the recovery continues, and there is an expectation of meaningful improvement in fiscal 2024, and eventually a return to profitability in fiscal 2025,” the S&P report noted.