A rough year so far for health system finances

https://mailchi.mp/b1e0aa55afe5/the-weekly-gist-october-7-2022?e=d1e747d2d8

As everyone in our industry knows, sluggish volumes amid persistently rising costs, especially for labor, have sent health system margins into a downward spiral across 2022. Using the latest data from consultancy Kaufman Hall, the graphic above shows that by the end of this year, employed labor expenses will have increased more than all non-labor costs combined. 

While contract labor usage, namely travel nursing, is declining, the constant battle for nursing talent means travel nurses are still a significant expense at many hospitals. Through the first six months of this year, over half of hospitals reported a negative operating margin, and the median hospital operating margin has dropped over 100 percent from 2019. 

Larger health systems are not faring better: all five of the large, multi-regional, not-for-profit systems we’ve highlighted below saw their operating margins tumble this year, with drops ranging from three points (Kaiser Permanente) to nearly seven points (CommonSpirit Health and Providence). 

While these unfavorable cost trends have been building throughout COVID, health systems now have neither federal relief nor returns from a thriving stock market to help stabilize their deteriorating financial outlooks. 

Health system boards will tolerate negative margins in the short-term (especially given that many have months’ worth of days cash on hand), but if this situation persists into 2023, pressure for service cuts, layoffs, and restructuring will mount quickly. 

Moody’s downgrades Envision Healthcare, says bankruptcy possible

https://www.healthcarefinancenews.com/news/moodys-downgrades-envision-healthcare-says-bankruptcy-possible?mkt_tok=NDIwLVlOQS0yOTIAAAGHIoNXD3RHJX9565s0VyIQfY4Uc14busfvrByxC5bYAOaGJlhBG7u8IwXVfkB87U6Jjbirffa4zrcOIdYpH9jOgLhMCdv-mgKhDKgBYygB

Envision will see weak liquidity over the following 12 to 18 months, and its $1.4B cash reserve will likely run dry by the end of next year.

Physician staffing company Envision Healthcare is struggling financially, and these struggles are reflected in a Moody’s Investors Service credit rating downgrade, which took into account ongoing labor pressures and a decline in volumes linked to the COVID-19 pandemic.

According to Moody’s, Envision will see weak liquidity over the following 12 to 18 months, and its $1.4 billion cash reserve will likely run dry by the end of next year. Moody’s said bankruptcy or restructuring is likely in the cards, and its Corporate Family Rating (CFR) has been downgraded from C to Caa3.

The rating action follows a series of transactions including restructuring of Envision’s senior secured credit facilities, and issuing a new revolving credit facility in July 2022 and other debt in April 2022 at its subsidiary, AmSurg. Moody’s deemed Envision’s transactions to be a distressed exchange, as the loans were exchanged at a price below par. That’s a default under Moody’s definition.

Envision’s capital structure is unsustainable, the rating agency said. Recovery rates for much of the company’s debt will be low. Moody’s expects operating performance will continue to deteriorate due to ongoing labor pressures within the industry, as well as rising interest rates that will cause interest expense to nearly double. 

The refinancing has not materially reduced debt, and while the maturities have been extended, Envision remains at risk of being unable to service its debt.

WHAT’S THE IMPACT

There are some factors in play that mitigate some of the risks. Envision has considerable scale and market position as one of the largest physician staffing outsourcers in the country, said Moody’s. The company has strong product diversification within its physician staffing and ambulatory surgery center segments.

However, continuing business pressures and increased interest expense will cause Envision’s free cash flow to be significantly negative in 2022 and beyond. 

When assigning the new ratings, Moody’s considered the expected loss on the Envision debt, which the Rating Agency expects will be significant. Moody’s noted that to the extent that there is asset recovery on the Envision business, the share of proceeds to the term loans will be applied to the Envision senior secured first out term loan before the other debt. But it’s expected that there will be material losses.

The outlook is stable for both Envision and the AmSurg subsidiary. Moody’s expects the company to remain distressed and there is a heightened risk of default given the weak liquidity and risks surrounding the ongoing sustainability of the business.

THE LARGER TREND

Envision operates an extensive emergency department, hospital, anesthesiology, radiology and neonatology physician outsourcing segment. The company also operates more than 250 ambulatory surgery centers in 34 states, and is owned by private equity firm KKR. Revenues for the period ending June 30 were about $7 billion.

Although it’s unlikely in the near term, a substantial improvement in Envision’s liquidity position –  including refinancing of the existing debt – would be needed to support an upgrade. Envision would also need an improvement in its operating performance, Moody’s said.

Earlier this month, Envision filed a lawsuit against UnitedHealthcare over the insurer’s denied claims, sparking a countersuit from UHC, which claimed Envision fraudulently upcoded claims for services provided to UHC members.

UHC removed Envision from its network last year, claiming the firm’s costs did not reflect fair market rates. According to Envision’s lawsuit, UHC denied about 18% of submitted commercial claims – a number that swelled to 48% of all claims after Envision’s removal from UHC networks, the firm said. And for the highest-acuity claims, Envision is accusing UHC of denying 60% of those claims.

Meanwhile, in June, physicians at Corona Regional Medical Center and Temecula Valley Hospital in California threatened to leave the hospitals if for-profit owner Universal Health Services changes the staffing management firm to Envision, according to an emergency room doctor who heads the hospitals’ current staffing firm, Emergent Medical Associates (EMA).
Physicians objected to Envision citing concerns of lower pay and staffing levels leading to lower quality of care.

Hospitals experiencing some of the worst margins since beginning of pandemic: Kaufman Hall

https://www.fiercehealthcare.com/providers/julys-hospital-margins-were-among-worst-pandemic-kaufman-hall-says

Despite a a seventh straight month of industrywide negative margins, “hospitals and health systems must think strategically and make investments to strengthen performance toward long-term institutional goals despite the day-to-day financial challenges they experience,” Kaufman Hall’s Erik Swanson said.

Months of inching performance gains were upended in July as the nation’s hospitals logged “some of the worst margins since the beginning of the COVID-19 pandemic,” Kaufman Hall wrote in its latest industry report.

Decreasing outpatient revenues paired with pricier inpatient stays were chief among the culprits and outpaced minor improvements in expenses, the group wrote in its monthly sector update for July.

What’s more, seven straight months of negative margins “reversed any gains hospitals saw this year” and has the advisory group forecasting a brutal year for the industry.

“July was a disappointing month for hospitals and put 2022 on pace to be the worst financial year hospitals have experienced in a long time,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a statement. “Over the past few years, hospitals and health systems have been able to offset some financial hardship with federal support, but those funding sources have dried up, and hospitals’ bottom lines remain in the red.”

Kaufman Hall placed its median year-to-date operating margin index at -0.98% through July, compared to the -0.09% from January to June the group had reported during last month’s report. Hospitals’ median percent change in operating margin from June to July was -63.9%, according to the report, and -73.6% from July 2021.

The month’s volume trends hinted at the larger shift toward scheduling procedures for ambulatory settings, Kaufman Hall wrote. For instance, operating room minutes declined 10.3% from June to July and 7.7% year over year, according to the report.

Patients who did come into the hospital tended to be sicker, the firm continued. Average length of stay increased 2% from last month and 3.4% year over year. Patient days increased 2.8% from the previous month but were down 2.6% from the prior year, while adjusted discharges dipped 2.8% from June and 4.2% from July 2021.  

These trends came together as a brake check on 2022’s to-date revenue gains. Gross operating revenue fell 3.6% from June but remains up 5.5% year to date. Outpatient revenue was down 4.8% from June and maintains a 7.1% year-to-date increase. Inpatient revenue declined 0.7% from June but is still up 3.6% year to date.

The silver lining in Kaufman Hall’s report were total expenses that, although up 7.6% from July 2021, saw a modest 0.4% decline since June. Those savings came squarely among supply and drug expenses as total labor costs and labor expense per adjusted discharge still grew 0.8% and 3.5%, respectively, since June. Increases in full-time employees per adjusted occupied bed “possibly” suggest increased hiring, the group wrote in the report.

Kaufman Hall acknowledged the “urgency of day-to-day pressures” driving the month’s sudden performance dips but urged hospital leaders to prioritize long-term operational improvements as they work to keep the organization afloat.

“2022 has been, and will likely continue to be, a challenging year for hospitals and health systems, but it would not be prudent to focus on short-term solutions at the expense of long-term planning,” Swanson said. “Hospitals and health systems must think strategically and make investments to strengthen performance toward long-term institutional goals despite the day-to-day financial challenges they experience.”

Kaufman Hall’s monthly reports are based on a sample of more than 900 nationally representative hospitals.

The group isn’t alone in its doom-and-gloom warnings for providers. Fitch Ratings recently wrote that high expenses, jilted volume gains and other challenges are unlikely to resolve before the end of the year. As such, the agency downgraded its outlook for the nonprofit hospital industry from “neutral” to “deteriorating.”

Read the full report here

Patient acuity is driving up hospital costs, AHA says

https://www.healthcarefinancenews.com/news/patient-acuity-driving-hospital-costs-aha-says?mkt_tok=NDIwLVlOQS0yOTIAAAGGiU3xe0NkF9CXkX2TRevw1rc34F0gW3xrh4u01QiSJCzDyJT2rG2TAkJAz344ryPgANhHM9yerPG9lZlib0xHBLXAwqAMIXRTIvQXgJLT

The AHA wants Congress to halt Medicare payment cuts and extend or make permanent certain waivers, among other requests.

The American Hospital Association has released a report on patient acuity that shows hospital patients are sicker and more medically complex than they were before the COVID-19 pandemic.

This is driving up hospital costs for labor, drugs and supplies, according to the AHA report. 

Hospital patient acuity, as measured by average length of stay, rose almost 10% between 2019 and 2021, including a 6% increase for non-COVID-19 Medicare patients as the pandemic contributed to delayed and avoided care, the report said. For example, the average length of stay rose 89% for patients with rheumatoid arthritis and 65% for patients with neuroblastoma and adrenal cancer. 

In 2022, patient acuity as reflected in the case mix index rose 11.1% for mastectomy patients, 15% for appendectomy patients and 7% for hysterectomy patients.

WHY THIS MATTERS

Mounting costs, combined with economy-wide inflation and reimbursement shortfalls, are threatening the financial stability of hospitals around the country, according to the AHA report.

The length of stay due to increasing acuity is occurring at a time of significant financial challenges for hospitals and health systems, which have still not received support to address the Delta and Omicron surges that have comprised the majority of all COVID-19 admissions, the AHA said. 

The AHA is asking Congress to halt its Medicare payment cuts to hospitals and other providers; extend or make permanent certain waivers that improve efficiency and access to care; extend expiring health insurance subsidies for millions of patients; and hold commercial insurers accountable for improper and burdensome business practices.

THE LARGER TREND

Hospitals, through the AHA, have long been asking the federal government for relief beyond what’s been allocated in provider relief funds.

In January, the American Hospital Association sought at least $25 billion for hospitals to help combat workforce shortages and labor costs exacerbated by what the AHA called “exorbitant” rates on the part of some staffing agencies. The Department of Health and Human Services released $2 billion in additional funding for hospitals.

In March, the AHA asked Congress to allocate additional provider relief funds beyond the original $175 billion in the Coronavirus Aid, Relief and Economic Security Act.

Earlier this month, the Centers for Medicare and Medicaid Services increased what it originally proposed for payment in the Inpatient Prospective Payment system rule. The AHA said the increase was not enough to offset expenses and inflation.

How hospitals are cutting back to reduce costs

Despite efforts to curtail high expenses, rising inflation and declining federal aid have led many hospitals to begin laying off workers and cutting certain services, Katheryn Houghton writes for Kaiser Health News.

Hospital costs have skyrocketed during the pandemic

At the beginning of the pandemic, hospitals’ financial challenges were largely related to the costs of responding to Covid-19 and missed revenue due to delayed care. However, hospital leaders now say their financial situations are a result of the omicron surge, rising inflation, and growing staffing challenges.

Many hospitals received millions of dollars in federal aid during the pandemic, but much of that money has since dwindled. For example, Bozeman Health said it received $20 million in aid in 2020, but this decreased to $2.5 million in 2021 and around $100,000 in 2022.

Many health systems say low surgery volumes, high supply costs, higher acuity patients, and languishing investments have all contributed to their declining revenues and growing expenses. In particular, labor costs have increased significantly during the pandemic, particularly as staffing shortages pushed hospitals to use more contract workers.

“If you talk with just about any hospital leader across the country, they would put workforce as their top one, two, and three priorities,” said Akin Demehin, senior director of quality and patient safety policy for the American Hospital Association.

According to Brad Ludford, CFO at Bozeman Health, the system spent less than $100,000 a month on contract workers before the pandemic, but that has now increased to roughly $1.4 million a week. Overall, the health system’s labor costs have increased around 12% from the same time last year, reaching around $20 million a month, during the first half of the year.

John Romley, a health economist and senior fellow at the Schaeffer Center for Health Policy and Economics at the University of Southern California, said some hospitals are likely now losing money, particularly with less federal aid coming in and growing inflation on top of their already high expenses.

For example, Bozeman Health president and CEO John Hill said the health system spent $15 million more than it earned in the first six months of the year. Several other health systems, including Providence, have also reported net operating losses this year.

Hospitals lay off workers, cut services to help reduce expenses

To reduce expenses, many hospitals are beginning to lay off workers and cut certain services, which has forced some patients to travel farther to receive care.

For example, Bay Area Hospital in Oregon recently ended 56 contracts with travel nurses and cut its inpatient behavioral health services due to the high costs of quickly filling vacant positions. Hospitals in California, Mississippi, New York, Oregon, and other states have also had to reduce the sizes of their workforces.

St. Charles Health System, headquartered in Bend, Oregon, laid off 105 workers and eliminated 76 vacant positions in May. The system’s CEO at the time, Joe Sluka, said, “It has taken us two pandemic years to get us into this situation, and it will take at least two years for us to recover.”

Similarly, Bozeman Health has laid off 28 workers in leadership positions and has not been able to provide inpatient dialysis at its largest hospital for months.

According to Hill, Bozeman took several other measures before deciding to cut jobs, including stopping out-of-state business travel, readjusting workloads, and reducing executive compensation. At the same time, it worked to transition contract workers to full-time employees and offered existing staffers a minimum-wage increase.

However, “[i]t still has not been enough,” Hill said. The health system currently has 487 open positions for essential workers.

According to Vicky Byrd, an RN and CEO of the Montana Nurses Association, hospitals should be offering longtime employees the same incentives they use to recruit new workers, such as bonuses for longevity and premium pay for taking extra shifts, to increase retention.

“It’s not just about recruiting — you can get anybody in the door for $20,000 bonuses,” Byrd said. “But how are you going to keep them there for 10 or 20 years?”

Going forward, some hospitals are considering automating more of their services, such as allowing patients to order food through an iPad instead of an employee, and are trying to adjust workloads, including having more flexible schedules, to retain their current workers.

“Now that we’ve adapted to life with covid in many regards in the clinical setting, we are dealing with the repercussions of how the pandemic impacted our staff and our communities as a whole,” said Wade Johnson, CEO of St. Peter’s Health

Advocate Aurora Health is down $601M year to date as it gears up for Atrium Health megamerger

https://www.fiercehealthcare.com/providers/advocate-aurora-health-down-601m-year-date-it-gears-its-atrium-health-megamerger

While Advocate Aurora Health’s year-to-date operating income sits at $51.2 million, $666 million in investment declines weigh heavy on its bruised bottom line.

Following a tight first quarter, Advocate Aurora Health managed to grow its operating margin but still landed negative due to $400 million in investment losses during the quarter ended June 30, according to financial filings.

The 27-hospital nonprofit—which pending regulatory review slated to merge with Atrium Health in one of the year’s biggest hospital transactions—reported a $48.7 million operating income during its second fiscal quarter of 2022 (1.7% margin).

This is up from the $2.5 million (0.3% margin) it scraped out earlier this year but well below the $213.7 million (6.5% margin) of Q2 2021.

Revenues for the quarter increased 1.5% year over year to more than $3.5 billion. While patient service revenue and other revenue both grew by tens of millions, capitation revenue declined slightly due to a shift in overall membership mix and a 6.1% dip in capitated lives, the system wrote in its filing.

Discharge volumes fell 7.7% year over year during the most recent quarter, as did home care visits by 7.6%. The system saw increases compared to the previous year among its observation cases (11.6%), hospital outpatient visits (2.1%) and physician visits (7.1%).

Advocate Aurora’s expenses grew at a faster rate, at 6.7% year over year during the second quarter. The increase was led by a 10.2% jump in salaries, wages and benefits payouts, which the system said was fueled by a blend of higher nurse agency costs, higher merit and premium pay for clinical care and volume-driven demand for more full-time equivalent employees.

The nonprofit saw last year’s investment gains largely upended, recording a $400 million net loss during the quarter compared to the $571.6 million gain of the prior year’s equivalent quarter.

The shortfall dragged Advocate Aurora’s net income to a $347.6 million loss for the quarter. It had logged a $545.6 million gain the previous year.

Looking at six-month numbers, the health system reported $7.1 billion in total revenue and $7 billion in total expenses for an operating income of $51.2 million. Year-to-date investment losses landed at $666 million, bringing the organization to a $600.8 million net loss.

Advocate Aurora was formed in 2018 from the merger of nonprofits Advocate Health Care and Aurora Health Care. It treats 2.6 million unique patients, employs 75,000 people and logged just under $14.1 billion in total revenue across 2021 and a net income of more than $1.8 billion.

Should its merger plans go through, Advocate Aurora and Atrium Health would control 67 hospitals and $27 billion of combined revenues across six states. The deal is anticipated to close before the end of the year, according to the earnings filing.

The system’s latest numbers will come as no surprise in light of similar quarterly reports from Advocate Aurora’s nonprofit contemporaries.

Investment struggles and increased expenses were reported across the board, although not every major system was able to keep operations in the black. Mayo ClinicKaiser Permanente and UPMC were among those on the stronger side of the scale while Sutter HealthMass General Brigham and Providence each reported tens to hundreds of millions in operational losses.

Fitch Ratings warned last week that these sector-wide challenges are unlikely to vanish during the remainder of the year. As such, the agency has downgraded its outlook for the nonprofit hospital industry from “neutral” to “deteriorating.”

Nonprofit hospitals’ ‘deceptively strong’ financial metrics likely to end, Fitch says

Nonprofit hospitals’ median financial metrics showed improvement last year, but Fitch Ratings is projecting declines for next year and beyond. 

The credit rating agency analyzed 2021 audited data and reported that “AA” rated hospital medians showed a 20 percent increase in cash to adjusted debt. “BBB” rated health systems had an 8 percent increase.

“The deceptively strong numerical improvements over prior years’ medians are less a sign of sector resiliency and more a cautionary calm before the storm,” Fitch Ratings senior director Kevin Holloran said in the Aug. 18 report. “Additional expenses, primarily labor, have become part of the permanent fabric of hospital operations, that when combined with ongoing incremental challenges will exert tremendous pressure on providers through calendar 2022 and beyond.”

Fitch predicts hospital medians will flip this time next year due to inflationary pressures, a challenging operational start to 2022 and additional omicron sub-variants. 

Fitch also highlighted staffing as a concern for hospital medians. 

“We are likely two years before some level of ‘normal’ returns to the sector,” Mr. Holloran said in the report. “For many hospitals, their ‘value journey’ will be on temporary hold until expenses stabilize and become more predictable.”

Sutter Health’s rising expenses and rough investments yield a $457M net loss for Q2 2022

Updated on Aug. 5 with comments from Sutter Health.

A $457 million net loss for the quarter ended June 30 has brought Sutter Health even deeper into the red for 2022, according to new financial filings.

The Sacramento-based nonprofit health system brought in $3.49 billion in total operating revenues from the quarter, down slightly from the prior year’s $3.51 billion.

At the same time, the system’s operating expenses grew from $3.41 billion in the second quarter of 2021 to $3.55 billion in the most recent quarter, driven by $30 million and $151 million year-over-year increases in salaries and purchased services, respectively. The latter includes the increased professional fees being felt by labor-strapped systems across the country.

These led the system to report a $51 million operating loss for the quarter as opposed to the $106 million operating gain from last year’s equivalent quarter.

“Poorly” performing financial markets also took a toll on Sutter’s numbers. The system’s quarterly investment income dipped from $251 million to $56 million from 2021 to 2022. A $495 million downward change in net unrealized gains and losses on its investments was also a stark reversal from the prior year’s $270 million increase.

The new numbers cement what was already looking to be a tricky year for Sutter Health, which had previously reported a $184 million net loss for its opening quarter.

Despite a 1.5% year-over-year operating revenue increase to $7.05 billion for the opening six months, a 1.7% year-over-year operating revenue bump places the system’s year-to-date income at $44 million (0.6% operating margin), slightly below last year’s $57 million (0.8% operating margin).

However, market struggles through both quarters and a $208 million loss tied to the disaffiliation of Samuel Merritt University now has Sutter sitting at a $641 million net loss for the opening half of 2022. The system was up $825 million at the same time last year.

Sutter’s finances have stabilized, but our year-to-date numbers show we still have more affordability work ahead as we strive to best position Sutter Health to serve our patients and communities into the future,” the system wrote in an email statement. “We are grateful for our employees and clinicians who have worked diligently over the last several years to help bring our costs down—at the same time managing through the pandemic and continuing to provide high-quality, nationally recognized care.”

Sutter noted in the filing that it is or will be in labor negotiations with much of its unionized workforce, as 43% of its contract agreements have either expired or will be running their course within the year.

The filing also included notice of a handful of legal matters that have yet to be resolved. These include an antitrust verdict in favor of Sutter that is being appealed by the plaintiff, a lawsuit regarding an alleged privacy breach of two anonymous plaintiffs and two separate class-action complaints regarding employee retirement plan funding, among others.

“The organization continues to face financial headwinds like inflation and increased staffing costs, as evidenced by our near breakeven operating margin,” Sutter said in a statement. “Even still, we are encouraged that independent ratings agencies have recently acknowledged our efforts to date. In the second quarter, Moody’s, S&P and Fitch all affirmed the system’s existing ‘A’ category bond ratings.”

Much of Sutter’s pains are being felt across the industry. A recent Kaufman Hall industrywide report showed only marginal relief from expenses and middling non-COVID volume recovery through June, while a Fitch Ratings update on nonprofit hospitals warned that these challenges and broader inflation pressures will likely weigh down the sector through 2022.

Inpatient payment increase not enough, AHA says

https://www.healthcarefinancenews.com/news/inpatient-payment-increase-not-enough-aha-says?mkt_tok=NDIwLVlOQS0yOTIAAAGGA2hNPoWk8cdzEHcBC5xk1t_79ltx5DUnzCdiUWpAvrtC-_vON29agi9pNZf0kUGl9cKeinq1FXBXdCEr_RCHDNPIsIG9WjhKw1KLwH8

Hospitals are forced to absorb inflationary expenses, particularly related to supporting their workforce, AHA says.

The Centers for Medicare and Medicaid Services’ increase in the inpatient payment rate for 2023 is welcome but not enough to offset expenses, according to the American Hospital Association.

CMS set a 4.1% market basket update for 2023 in its final rule released Monday, calling it the highest in the last 25 years. The increase was due to the higher cost in compensation for hospital workers.

The final rule gave inpatient hospitals a 4.3% increase for 2023, as opposed to the 3.2% increase in April’s proposed rule.

WHY THIS MATTERS

CMS used more recent data to calculate the market basket and disproportionate share hospital payments, a move that better reflects inflation and labor and supply cost pressures on hospitals, the AHA said.

“That said, this update still falls short of what hospitals and health systems need to continue to overcome the many challenges that threaten their ability to care for patients and provide essential services for their communities,” said AHA Executive Vice President Stacey Hughes. “This includes the extraordinary inflationary expenses in the cost of caring hospitals are being forced to absorb, particularly related to supporting their workforce while experiencing severe staff shortages.”

The AHA would continue to urge Congress to take action to support the hospital field, including by extending the low-volume adjustment and Medicare-dependent hospital programs, Hughes said.

In late July, Senate and House members urged CMS to increase the inpatient hospital payment.

Premier, which works with hospitals, also said the 4.3% payment update falls short of reflecting the rising labor costs that hospitals have experienced since the onset of the pandemic. 

“Coupled with record high inflation, this inadequate payment bump will only exacerbate the intense financial pressure on American hospitals,” said Soumi Saha, senior vice president of Government Affairs for Premier.

THE LARGER TREND

Recent studies show hospitals remain financially challenged since the COVID-19 pandemic’s effect on revenue and supply chain and labor expenses. Piled onto that has been inflation that has added to soaring expenses.

Hospital margins were up slightly from May to June, but are still significantly lower than pre-pandemic levels, according to a Flash Report from Kaufman Hall.

The effects of the pandemic on the healthcare industry have been profound, resulting in the creation of new business models, according to a report from McKinsey.

Transformational change is necessary as hospitals have been hit hard by eroding margins due to cost inflation and expenses, Fitch found.