The nonprofit hospital sector in 2025 stabilized a multiyear trend of credit rating downgrades outpacing upgrades, according to a review of the three major credit agencies' rating actions published this week.
Moody’s, S&P and Fitch collectively downgraded 75 nonprofit borrowers last year, down from 95 in 2024 and 116 in 2023. The bigger swing was the year’s 73 rating upgrades, well above 2024’s 37 and 2023’s 33.
The ratings upgrades spanned much of the country, whereas there was “some concentration” of the downgrades in New York, Pennsylvania, Ohio and California, wrote Kaufman Hall Managing Director Lisa Goldstein in the ratings activity recap.
And, while the ratings changes were spread across a variety of hospital and health system characteristics, “the overwhelming majority of ratings were affirmed, providing support for the rating agencies’ stable (Moody’s and S&P) and neutral (Fitch) outlooks for 2026," Goldstein wrote. Kaufman Hall also expects ratings affirmations to again dominate in 2026, based on its national monitoring of hospital operations and the delayed reimbursement changes of H.R. 1.
The jump in upgrades reflects, in large part, hospitals’ improved financial performance, including their debt burdens and available cash, according to the review. Many hospitals are riding a wave of increased supplemental funding, for which the agencies noted some concern about hospitals’ reliance for cash flow, and others are seeing their prior integration and growth strategies bearing fruit.
Also in the running were hospitals that benefited from their mergers, Goldstein noted. For some, the transactions brought two separate ratings upgrades during the calendar year—once at closing, and again when outstanding debt was incorporated by the higher rated system’s borrowing pledge—or rating upgrade spanning multiple levels.
The year’s downgrades, meanwhile, mainly reflect weakened financial performances, lower debt service coverage and declining liquidity. There were fewer multi-notch downgrades than in prior years, with those that occurred tied to sharp declines in performance and liquidity.
“We expect multi-notch rating downgrades to continue in 2026 given hospitals’ sensitivity to volume changes, the competitive environment in most markets and an ongoing shift to government payers, which creates less price elasticity,” Goldstein wrote.
Though the majority of the credit agencies’ rating portfolios are investment grade, the distribution has shifted downward in recent years due to macroeconomic challenges like the pandemic. Some of the downward drift has been blunted by hospitals with low ratings that are seeking mergers with more financially stable partners, though “a prolonged dislocation in the equity markets or downturn in local or regional economies could further shift the rating distribution downward,” Goldstein wrote.Â