Nonprofit hospitals’ liquidity supports the ability to repay CARES Act loans, says Fitch

By | September 15, 2020

Repayment of loans provided under the Coronavirus Aid, Relief and Economic Security Act through the Centers for Medicare and Medicaid Services, is expected to begin soon. This has been a source of stress for some hospitals, but for nonprofits, there’s good news: This won’t materially affect their financial profiles, according to Fitch Ratings.

Providers’ ratings are supported by ample liquidity, and the expectations are for a long-term volume recovery due to the essential nature of services. 

Liquidity will gradually decline as advances are repaid but full and timely repayment is part of the rating assumptions for all issuers, and Fitch anticipates most providers will ultimately maintain liquidity profiles consistent with current rating levels based on expectations for continued volume recovery.


The COVID-19 pandemic resulted in significantly lower volumes and top-line revenue, as the most profitable elective procedures were cancelled in an effort to preserve personal protective equipment and increase bed capacity. While it’s not anticipated, loan repayments in the form of reductions in Medicare payments would only pressure ratings if volume recovery is markedly slower than expected, or if there’s a significant rise in infections that results in more cancelled elective procedures.

Nonprofit hospitals are already showing a strong recovery in elective patient volumes. Fitch-rated issuers in states that reopened in late April or early May are seeing overall volumes at roughly 80% to 90% of pre-coronavirus levels for most services, and more recovery is expected. While there’s still some patient hesitance to seek non-coronavirus medical care, particularly visits to the emergency department, a return to near pre-COVID-19 levels is possible by year’s end. Downside risks remain, though, given the volatile nature of the virus itself.

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While stimulus funds don’t need to be repaid if certain terms and conditions are met, the Medicare Accelerated and Advance Payment Programs administered by CMS must be repaid. These were expanded to provide up to six months of advance Medicare payments as temporary emergency loans to stabilize provider cash flow. The AAP impact had more of an effect for those hospitals that receive the largest amount of Medicare payments, and for those hospitals that had a lower absolute level of liquidity prior to the coronavirus. 

The initial timeline for repayment of the Medicare advances was extended and may be again, according to Fitch. Some members of Congress proposed forgiving the loans and having them converted into grants as part of a new federal coronavirus aid package. Congress does not yet seem to be close to an agreement, and in the meantime loan repayments are expected to begin soon.

The amounts provided under the AAP account for as little as 10% of unrestricted liquidity for some of Fitch-rated issuers, although this increases to almost 30% for some issuers with lower levels of liquidity. In terms of total revenues, funds under the AAP range from a low of around 5% of total revenues to around 15%, depending on a hospital’s commensurate amount of Medicare revenue.


While the outlook for nonprofit hospitals is better than anticipated, the financial effects of the pandemic will be felt in the future. In the meantime, the credit rating firm found earlier this month that operating margins and operating EBITDA increased slightly in 2019 to 2.3% and 8.7%, respectively, up from 2.1% and 8.6% the year before. Median excess margin and EBITDA improved from 4% and 10.4% to 4.5% and 10.6%, respectively.

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These numbers do not yet show the impact of the pandemic. Post-pandemic, capital spending will be generally reduced as organizations scrutinize every dollar.

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