S&P Global – Health Care Credit Outlook, 2024

The low end of the speculative-grade rated health care companies will continue to deteriorate in the first half of 2024. However, demand has normalized for most companies in the first half of 2023 and inflationary and labor costs have also moderated, although labor remains a long-term challenge. The labor-intensive, lower-margin health care providers at the lower end of the ratings spectrum are still at risk of downgrades. In terms of assumptions for 2024, patient and procedure volumes are expected to remain steady, with revenue growth projected at mid- to upper-single digits in most sectors. Additionally, EBITDA margins are expected to steadily improve as costs stabilize and demand normalizes. There is also an expectation of increased mergers and acquisitions in the pharma and services sectors. There are some key risks to consider. Inflationary and labor pressures may persist despite improvements in 2023. The reimbursement environment has been relatively benign, but payors may become stricter as health care costs rise. The implementation of the No Surprise Act has negatively affected free cash flow generation, which could have negative ratings consequences. In summary, the health care sector is experiencing ongoing challenges, particularly at the low end of the ratings spectrum. Demand has normalized and costs have moderated, but labor remains a concern. Overall, the outlook for 2024 includes steady demand, improved margins, and potential increases in mergers and acquisitions, but risks such as inflationary pressures and reimbursement issues should be monitored.