Credit rating agency labels nonprofit hospital sector as “deteriorating.”

The credit rating company Fitch Ratings revised its sector outlook for nonprofit hospitals and health systems to “deteriorating” in its latest report.

Fitch notes that labor troubles have created issues for nonprofit hospitals, and broader macro inflationary pressures are making the sector even more vulnerable to future stress. For example, nurses were already in high demand pre-COVID, but the pandemic has only exacerbated a glaring shortage of nursing staff. Staffing agencies that provide nurses to hospitals have continuously raised rates as demand continues to rise.

“Even if macro inflation cools, labor expenses may be reset at a permanently higher level for the rest of 2022 and likely well beyond,” said Kevin Holloran, senior director, Fitch Ratings, in a statement.

Holloran added that many nonprofit health providers will violate debt service coverage covenants in 2022. “We may be in a period of elevated downgrades and negative outlook pressure for the rest of 2022 and into 2023,” said Holloran.

S&P Global Ratings, another credit rating company, issued a similar negative outlook in June, also citing inflation and rising labor costs.

Rural hospitals have struggled, as well. Kaiser Health News recently reported that many rural hospitals are being sold to investors or closed.