Children's Hospital Medians Are 'Deteriorating'

Median cash flow metrics for these hospitals are falling to the lowest level in a decade, Fitch Ratings reports.

A Fitch Ratings’ medians ratio report shows the financial resiliency of U.S. not-for-profit children's hospitals is being put to the test.

On top of investment portfolio losses, incessant inflation, and staffing shortages, children’s hospitals have had to contend with a decline in patient acuity and a temporary increase in contract labor utilization, the report said.

How does this compare to previous years? Well, according to the report, 2023 children's hospital medians show operational deterioration and liquidity dilution with median cash flow metrics falling to the lowest level in a decade.

But, there is good news.

The report shows that children’s hospitals still have favorable reimbursement, unique market positions, and generally maintain a lower debt load, which allows for a more consistent performance, Fitch said.

The median days cash on hand for children's hospitals is 323, and while this is a significant drop to prior years, these numbers are still higher than overall acute care facilities and are still in line with pre-pandemic levels, the report said.

Despite these formidable challenges, the stand-alone children’s hospitals’ median rating remains strong at ‘AA-’ Fitch says.

“Children's hospitals continue to be able to drive positive operating results as a result of favorable reimbursement for higher acuity services and distinct market positions that provide for more consistent volumes compared to the overall acute care sector,” said Fitch Ratings director Richard Park in a news release.

Working through deteriorating margins isn’t new for Bridgett Feagin, CFO for Connecticut Children's—a level 1 pediatric trauma center with roughly $600 million in net patient revenue. She has been working tirelessly since joining the organization in June 2020 to balance the hospital's financial needs with its mission to help sick children.

“One thing I always tell my team is, no margin, no mission. You need a margin to continue with the mission. So, it's about balancing the needs of the community and being able to cover your costs,” she previously told HealthLeaders.

Connecticut Children’s doesn’t have high margins, she says, but it obviously needs a decent margin to be able to continue with patient care to cover inflation.

So, what’s the workaround?

“We work with our payers to cover our costs and a little bit more than our costs because we need to purchase capital and facilities. So, it's a fine line. We have to be good partners with our payers in order to get paid for the services that we render,” she said.