LEBANON — Fitch ratings downgraded Dartmouth Health’s outlook from stable to negative last week.

The outlook change was due to weak operating cash flow with operating losses that accelerated in fiscal year 2023, according to the Dec. 13 rating action commentary from Fitch. But the ratings agency indicated this may be a temporary change.

“Fitch believes that the efforts being implemented by the management team under its performance improvement plan (PIP) should lead to gradual improvement in both operating results and liquidity over the next two years,” the ratings agency said. “If operating improvements are maintained and D-HH is able to demonstrate progress towards a 3% operating margin over the next two years, Fitch could return the Outlook to Stable.”

The ratings agency also affirmed the ‘A’ rating on revenue bonds issued either by the New Hampshire Health and Education Facilities Authority on behalf of the Dartmouth-Hitchcock Obligated Group or directly by the DH group, which includes Alice Peck Day Memorial Hospital, Dartmouth Hitchcock Medical Center and Dartmouth Hitchcock clinics, Mt. Ascutney Hospital and Health Center in Windsor and New London Hospital.

In addition to the members of the obligated group, DH members also include Cheshire Medical Center in Keene, N.H., Southwestern Vermont Medical Center in Bennington, Vt., and Visiting Nurse and Hospice for Vermont and New Hampshire.

Fitch explained the ‘A’ rating by saying that DH is “the leading acute care provider in a broad, multi-state and demographically stable market, which Fitch believes helps to maintain its competitive advantage and supports its revenue defensibility.” Fitch also pointed to DH’s “market position and high acuity patient mix, increased capacity and expanded market presence” as advantages it expects the health care system to capitalize on.

DHMC opened a new patient tower in May, adding beds to the flagship academic medical center. It also welcomed Southwestern Vermont Medical Center into the fold in July. A plan to also add on Valley Regional Hospital in Claremont is pending regulatory approval.

“Fitch understands that D-HH will continue to look for ways to broaden the system’s footprint, particularly in Southern New Hampshire, as it seeks to establish a hub among the bigger cities,” the commentary said.

Audra Burns, a DH spokeswoman, in a Tuesday email pointed to the continued ‘A’ rating from Fitch and noted that Standard & Poor’s, another rating agency, reaffirmed an ‘A’ rating with a stable outlook in September.

“While Fitch indicates an outlook revision from stable to negative, we believe that this is a temporary reflection of the overall negative national sentiment in the healthcare sector,” Burns said.

She noted that the system continues its work to improve its finances.

“We are proud of the progress we are making to recover from the pandemic by working to solve challenges that were present even before the pandemic, including workforce shortage, an aging community, both public and private reimbursement rates and escalating supply chain expenses,” she wrote.

The system logged an operating loss of about $45.3 million on a budget of $3.15 billion for the fiscal year that ended June 30. That was a larger loss than the $22.1 million operating loss in 2022, but the system received far less federal stimulus money last fiscal year — just $1.8 million compared with $98.8 million in 2022.

For the first quarter of the current fiscal year, DH saw an operating loss of $8.2 million, or 1%. For the same quarter last year, losses exceeded $41 million.

DH implemented a performance improvement plan in November 2022, which officials have said aims to achieve break-even monthly performance this fiscal year, which began July 1. The plan includes a focus on productivity, access and throughput, some workforce-related initiatives and system redesign.

In June, DHMC and DH Clinics laid off 75 workers and eliminated about 100 vacant positions. DH officials have said no further layoffs are planned.

Fitch, in its commentary, credited the performance improvement plan with improving DH’s operating margin by $62.9 million last fiscal year. Another $190 million of margin improvement is expected this year.

There are still challenges ahead. Fitch noted that as part of its plan, DH is aiming to reduce its reliance on traveling workers, but that it has been struggling to do so. “While the hourly rates of premium staff have declined by about a third, the continued volume levels are still requiring the use of traveler staff,” the commentary said.