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Nonprofit Hospital Outlook 'Negative' in 2014

John Commins, for HealthLeaders Media, December 2, 2013

Several negative factors are unlikely to abate soon, including declining inpatient volumes, increasing expenses, and historically low increases in commercial payer rates.

Since 2008, Moody's Investors Service has been issuing a "negative" credit outlook for not-for-profit hospitals, and the streak continues for 2014. Moody's cites drops in revenues and inpatient volumes and says it expects that not-for-profit hospitals' median revenue growth in fiscal year 2013 will fall to a range of 3% to 3.5% (significantly down from FY2012's 5.2% growth rate) and will remain low in 2014.

The credit rating agency listed several factors that will reduce not-for-profit hospitals' revenues, including:

  • A 1.3% Medicare payment reduction, as well as the reduction in disproportionate share payments that began October 1
  • Continued declines in inpatient volumes and the shift toward outpatient settings with lower reimbursements
  • A low increase in commercial payer rates of between 0%–5%, which is far below historic levels
  • Expenses that are growing faster than revenues for the second year in a row, particularly for healthcare information technology and expanding physician practices
  • Uncertainty around the Patient Protection and Affordable Care Act, particularly as it relates to the uneven growth of insured populations, Medicaid expansion, and the technical problems surrounding health insurance exchanges

Daniel Steingart, a Moody's assistant vice president and analyst, spoke with HealthLeaders Media about the challenges facing the sector this year and heading into 2014. The following is an edited transcript.

HealthLeaders Media: This is the sixth year in a row with a negative outlook. Do you remember when it was anything other than negative?

Steingart: I assume that is a bit of rhetorical question but that's a fair point. One thing I would say is that over the past couple of years there have been some different rationales behind those negative outlooks. So you have to take that into account when you're thinking about the run record. Initially we were looking at the financial crisis and the effects of that on balance sheets and access to capital. Then it was the recession. And now it's been the changes in reimbursement and what we see as the negative impact from the health insurance exchanges and some elements of healthcare reform. We are looking for signs of stability. It could be that we are entering a period of new normal and we will reassess the outlook in light of that. But it has been negative for quite a while.

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