Kaufman Hall’s 2025 Summer Rating Agency Update offered an early look at how the newly enacted One Big Beautiful Bill (OBBB) could reshape hospital credit profiles. With implementation timelines staggered over several years, health system leaders have a critical window to adapt. The update also explored how rating agencies are approaching key issues such as the OBBB’s broader impact on healthcare clients, the growing use of off-balance sheet debt, ongoing merger and consolidation activity and shifting dynamics in capital planning.
Our panelists included Dan Steingart, Associate Managing Director, Moody’s Ratings, Suzie Desai, Senior Director, S&P Global Ratings and Kevin Holloran, Senior Director, Fitch Ratings.
Here are seven key takeaways from our conversation with them.
1. Sector outlooks remain “stable/neutral”
All three major rating agencies— Moody’s (stable), S&P (stable), Fitch (neutral)—maintained their sector outlooks following enactment of the One Big Beautiful Bill (OBBB), citing a long runway before any material credit rating shifts are expected. While the bill is projected to reduce Medicaid enrollment and introduce funding cuts between 2026 and 2028, the agencies see no need for immediate rating actions. Instead, they plan to closely monitor quarterly results and management scenario planning as key provisions phase in. The gradual rollout allows time to map exposure risk, assess absorbability and adjust outlooks as necessary. Because special funding shifts are already incorporated into rating criteria, agencies believe modest reductions should be manageable for most credits. In response, the agencies agreed that healthcare organizations will need to develop strategic plans to manage potential funding gaps, with common strategies including service line optimization, joint ventures and expense management.
2. Medicaid & exchange exposure under the microscope
While patient volumes have mostly returned, margins continue to lag pre-pandemic targets due to persistent labor cost increases, rising denial rates and ongoing payer-contract friction. The first significant impact from the OBBB could be felt with the expiration of enhanced ACA exchange subsidies on January 1, 2026—a key pressure point that could trigger immediate shifts in insurance enrollment. Rating agencies plan to closely monitor exposure around this transition to determine whether rating actions are warranted. Safety-net providers and systems with large Medicaid managed-care populations face disproportionate risk, potentially confronting a “double-whammy” of enrollment churn and associated revenue loss.
3. Capital spending rebounds after pandemic pause
A sharp increase in capital spending is underway as health systems move forward with long-deferred projects, often financed through new-money debt while balance-sheet liquidity remains strong. Credits are beginning to make up for the pause in capital investment from 2021 to 2024, with stronger systems accelerating spend and weaker ones facing continued constraints. As this investment cycle progresses, debt metrics relative to revenue—previously on the decline—are expected to rise. The agencies agreed that while there may be leniency for strategic capital spending plans, organizations need to demonstrate a clear rationale for such investments, particularly given ongoing margin pressure and recovery challenges in the healthcare industry.
4. Alternative financings are debt, and growing slightly
The agencies have seen growth in alternative, “off balance sheet” financing structures like operating leasing and deferred revenue liabilities, which they explain are treated as debt-equivalent on the balance sheet. While these structures are growing as a percentage of debt, they remain a minority component of financing, with public debt markets still being the primary source of long-term financing for most organizations.
5. Consolidation likely—but must be strategic
M&A activity is expected to pick up, especially where partnerships can help resolve payer-mix challenges or achieve scale. Agencies stress that transactions must show tangible strategic value, beyond size. Credits need to be particularly careful to consider strategic consolidation to make sure it strengthens financial or market position.
6. Widening gap between strong and weak credits
Early median season reads show operating margins improved year-over-year yet are still below pre-pandemic levels while cash-to-debt ratios reached an all-time high. Despite these stable leverage metrics and improved coverage, margins have not fully recovered, particularly as expenses remain a concern. The gap between large and small systems widens—large systems hold record cash-to-debt ratios, while smaller hospitals face increasing age of plant and limited options.
7. Communicating with rating agencies: scenario specificity and discipline is vital
Robust cash reserves, flexible credit lines and detailed scenario modeling will be essential mitigants. Transparency around contingency plans and demonstrated readiness will differentiate organizations.
Next steps
The panel will reconvene at the Therese L. Wareham Rating Agency Panel during the Kaufman Hall Healthcare Leadership Conference on Thursday, Oct. 23. We thank our panelists for sharing their insights and look forward to continuing the conversation. A full recording is available on our website.
