Hospital average days cash on hand hit 10-year low: S&P

Median days cash on hand dipped to a 10-year low for U.S. hospitals and health systems, according to an Aug. 7 S&P Global Ratings’ report.

In 2023, overall operating expenses grew 5% after a 17% growth in 2022, and median total operating revenue was up 8.8% last year. There was continued pressure on days cash on hand. For the first time in the last decade, average days cash on hand dropped below 200 to 196.8. The upper half of U.S.-based nonprofit acute healthcare providers reported an average of 292 days while the lower half reported 128 days on average.

Unrestricted reserves were up “modestly” for most hospitals, according to the report, and there was a drop in median long-term debt and leverage.

“Leverage remained sound ahead of heavy borrowing observed in 2024,” noted the report. “Debt measures were stable or improved in fiscal 2023, with sustained strong funding levels for defined-benefit pension plans. We anticipate some worsening in this area over the coming year as providers increase borrowing activity.”

By June of 2024, S&P reported 26% of nonprofit acute healthcare organizations had AA ratings, 44% had A ratings, and 20% had BBB ratings. The performance outlook for 74% of organizations was stable and 22% had a negative outlook. The remaining 4% had a positive outlook, down slightly from December 2023.

There is still a gap between healthcare organizations with highest and lowest performing medians, and the best performing organizations “have not been immune from sector difficulties,” according to the report. In some cases, even organizations with traditionally strong medians have weakening credit quality and the bottom performers are still feeling the pinch. Top performers reported 2.5% operating margins while the lower half had -2.7% operating margins on average.

The stronger performers could still improve cash flow to reinvest in their organization, according to S&P. Overall, last year’s performance medians made incremental progress as the gap between revenue and expenses closed. But that’s not enough to return organizations to pre-pandemic growth.

“Cash flow did not improve meaningfully and is still below many organizations’ long-range margin target that yields sufficient resources for capital investment and maintains desired balance-sheet cushion,” stated the report. “After a decade of maximum annual debt service coverage at or above 4.0x, this measure of cash flow fell in 2022 and then further in 2023 to just 3.1x.”

S&P also reported increased capital spending and debt activity for the first half of the year while cash on hand and cash flow have stayed at historical lows.

“Given these factors, combined with the higher percentage of negative outlooks, we expect some ratings will still be negatively affected but this will hinge in large part on the pace of general recovery trends in the next year or two,” states the report.