Hospitals See Most First Quarter Defaults Since 2011

By Andrew Cass of Beckers Hospital Review

Bonds of eight hospitals lapsed in "impairment" - meaning they experienced covenant issues amounting to a technical or monetary default - in the first quarter of 2023, the highest number of hospitals disclosing default since 2011, Bloomberg reported March 31. 

Only one hospital disclosed default in the first quarter of 2022, according to the report. 

The data comes from Municipal Market Analytics. Lisa Washburn, the organization's managing director, told Bloomberg that an unusual aspect of the impairments is some are coming from large, highly-rated systems. 

“Some of the unusual parts about the impairments that we’re seeing is that they are coming from sometimes large, highly-rated systems,” she said in an interview. “That’s actually something that struck us at the beginning of the year when it started to happen because you wouldn’t expect normally to see covenant breaches happening for an A-rated system.”

Ms. Washburn said that is due to a combination of negative investment returns in 2022, federal COVID-19 relief funds drying up and rising costs, particularly labor, according to the report. She added that a backlog of patients who need to move to nursing homes but cannot due to staffing shortages also have affected finances. 

"And now add to it that debt costs are higher," she told Bloomberg. 

Another source of pressure is competition for patients, Chris George, a senior managing director at FTI Consulting, told the publication. 

"You're seeing a very slow evolution of care moving to an ambulatory setting," he said. 

“A lot of local hospitals, their biggest challenge is access to capital,” George told Bloomberg in an interview. “It’s going to be a tough year this year.”