For-profit hospitals are expected to see a reduction in bad debt and favorable year-over-year earnings over the next 18 months and that has prompted Moody's Investors Service to upgrade its outlook for the sector from "stable" to "positive."
Moody's says the reduction in bad debt will come as more people obtain health insurance through Medicaid expansion or the health insurance exchanges under the Patient Protection and Affordable Care Act.
"The impact will vary among institutions based on factors including their location, since only 26 states and the District of Columbia have expanded their Medicaid programs under the act," says Dean Diaz, a senior vice president at Moody's.
The expected year-over-year improvement in earnings is expected mainly because 2013 was marred by declining patient volumes and the 2% cuts to Medicare reimbursements under sequestration.
"Our outlook is predicated on the year-over-year projections, and 2013 was a tough year for the sector, for-profit or not-for-profit," Diaz says. "There were a lot of volume and EBITDA (earnings before interest, taxes, depreciation, and amortization)declines so it creates a lower base for companies to grow off of. The prior year was lower, so we have an easier comparison as far as our growth number, because that is what our outlook is based off of."