S&P Global Ratings' 2024 U.S. not-for-profit acute health care rating and outlook actions reversed a three-year downward trend from 2021 through 2023, with fewer downgrades and a meaningful shift to favorable outlook revisions (stable to positive, negative to stable, or negative to positive) and away from unfavorable outlook revisions (stable to negative, positive to stable, or positive to negative). While we upgraded fewer entities in 2024 than in 2023, over half of the upgrades in each year were due to merger and acquisition activity. In addition, the stability of rated entities continues to increase, with 83% of ratings unchanged in 2024, which is comparable with 2022 but significantly improved from 79% in 2023 (see chart 1). At the end of 2024, most organizations carried stable outlooks (77%), up from 72% in 2023 (see chart 2). In our view, these trends support our decision to revise our sector outlook to stable from negative, although we also acknowledge that there are risks and pressures, particularly in the lower-rated categories (see "U.S. Not-For-Profit Acute Health Care 2025 Outlook: Stable But Shaky For Many Amid Uneven Recovery And Regulatory Challenges," published Dec. 4, 2024, on RatingsDirect).

During 2024, total upgrades and downgrades dropped about 15% from 2023 levels. We upgraded and downgraded 60 organizations and took 60 favorable and unfavorable outlook revisions in total (see table 1). Of the 49 downgrades, slightly more than one-quarter were actions on eight distressed entities, with multiple downgrades or multinotch downgrades on a single issuer. This includes defaults on rated debt at Tower Health in Pennsylvania and Jackson Hospital and Clinic in Alabama. Downgrades continue to outpace upgrades with actions slightly uneven throughout the year; however, the pace of upgrades has been fairly consistent each month (see chart 3). The pace of outlook revisions, both favorable and unfavorable, was more even throughout the year (see chart 4). At the end of 2024, one-quarter of our ratings carried a nonstable outlook with the majority being negative (17%) or positive (6%). In addition, ratings on two organizations carry developing outlooks and three are on CreditWatch with negative implications.

For further details, see the lists at the end of this article.

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Our sector view revision to stable is based on the shrinking number of negative outlooks, more favorable outlook revisions (see chart 5), and fewer downgrades (see chart 6) in 2024 compared with 2023, along with our view that credit risk is becoming more concentrated within the low investment-grade and speculative-grade categories as opposed to the entire ratings universe. Furthermore, most of the outlook revisions were to stable from negative (see chart 7). Although the number of outlook revisions to negative from stable was also elevated, particularly in the second quarter, it was an outlier, with subsequent quarters showing fewer unfavorable outlook revisions.

Evidence of solid revenue and volume growth, general balance-sheet stability, and some relief from labor and inflationary pressures contributed to more stable rated organizations in 2024. In 2025, we expect downgrades will continue to outnumber upgrades, particularly at the lower end of the rating spectrum. In addition, ongoing pressures from payers, uncertainties around policies and regulations from the new federal administration and Congress, and a trend of rising strategic and capital investments will play into future credit quality.

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Acute health care entities consist of stand-alone hospitals (57%) and health care systems (43%). The number of rated systems is almost equal to the number of stand-alone hospitals as mergers and acquisitions lead to consolidation in the number of rated organizations. Not surprisingly, most downgrades in 2024 were to or within the speculative-grade category (18 of 49) and although we upgraded four organizations in the speculative-grade category, three were due to mergers with higher-rated issuers. Similarly, of the six upgrades from the 'BBB' and 'A' categories, half reflected mergers with higher-rated entities. Typically, we take fewer rating actions in the 'AA' category as higher-rated issuers generally have more cushion to weather sectorwide events and less upside potential. This is evidenced by the absence of health care organizations rated 'AAA' based on their own credit characteristics. In 2024 we upgraded one hospital within the 'AA' category (Dallas County Hospital District to 'AA' from 'AA-') but downgraded 10, including Ascension Health Alliance to 'AA' from 'AA+', the highest rating in our rated universe.

Because of recent higher-than-historical rating volatility as well as merger and acquisition activity, our rating distribution has shifted slightly. As in the past, the distribution is typically more favorable for health systems than for stand-alone providers (see chart 8), although neither sector has been immune to recent industry strains and the gap has narrowed. At year-end 2019, before the pandemic, the most common rating on health systems was 'AA-' and on stand-alone hospitals, 'A-'. As of year-end 2024, the most common rating on both health systems and stand-alone providers is 'A' (see chart 9). Among health systems, ratings have fallen to the 'A' category from the 'AA' category, although the percent of systems rated in the 'AA' category remains meaningfully higher when compared with stand-alone ratings. Stand-alone hospitals rated in the 'BBB' and speculative-grade categories approximately equal the number of 'A' category ratings, with just below 15% of stand-alone hospitals rated in the 'AA' category.

Given the generally lower rating distribution for stand-alone providers, we would expect and have witnessed more rating volatility in that group compared with health systems. Although stand-alone hospitals and systems had a similar percent of upgrades in 2023, in 2024 we upgraded a higher percentage of stand-alone providers (see chart 10) and downgraded a lower percentage of systems (see chart 11). This reflects system benefits from size, scale, and diversity, although the advantages have narrowed in the current environment as the issues facing providers cannot necessarily all be resolved by the benefits of size, scale, and diversity.

At the end of 2024, stable outlooks comprised 77% of all rated issuers, with 74% of stand-alone hospitals and 80% of health systems carrying stable outlooks (see charts 12 and 13). Although there are more negative outlooks further down the rating scale (12 of 39 speculative-grade ratings carry a negative outlook or are on CreditWatch with negative implications), this subset of organizations has stabilized compared with 2023 when about half of the speculative-grade ratings carried negative outlooks. Conversely, with few exceptions, the positive outlooks are concentrated in the 'BBB' and 'A' rating categories.

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We rate close to 400 health care organizations in every state in the country (as well as in the territory of Puerto Rico). About 54% of our ratings are on organizations in the Midwest and Southeast while only 8% are in the Southwest (see map and chart 14).

The rating distributions for the Northeast and West generally resemble bell curves although the West has a slightly more favorable distribution with more 'AA' category ratings and fewer speculative-grade ratings (see chart 15). In the Midwest and Southeast, there are few speculative-grade ratings; rating distribution in the Southeast most closely aligns with the overall distribution of all ratings. The Midwest, Southeast, and Southwest all have a high percent of entities rated in the 'AA' and 'A' categories (72% to 77%). However, the Southwest, although it contains the smallest number of issuers, is the only region where the most common rating is 'AA' and it also has the lowest percentage of negative outlooks. The Northeast, West, and Midwest have the highest percentage of negative outlooks at 19% (compared with 17% overall), as these regions contain states with various operating pressures including persistent labor issues and aging population.

We believe many of the regional differences are fueled by characteristics at the state level that can materially affect ratings due to differences in demographic trends, payer mix, third-party reimbursement, and clinical practices.

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For new ratings assigned in 2024, see table 2. For upgrades, downgrades, and favorable and unfavorable outlook revisions made during 2024, see tables 3, 4, 5, and 6.

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