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NFP Hospitals' Revenue Growth Outpaced by Expense Growth Rate

Rene Letourneau, for HealthLeaders Media, April 24, 2014

Factors contributing to a grim economic report from Moody's Investors Service include low rate increases from commercial payers, Medicare and Medicaid rate cuts, and a shift in payer mix to more governmental payers, says a Moody's analyst.

Expense growth for the not-for-profit hospital sector outpaced revenue growth in fiscal year 2013, says a Moody's Investors Service report released Wednesday.

In its report, "Revenue Growth and Profitability Drop in US Not-for-Profit Hospital Preliminary Medians," Moody's says FY 2013 marks the second year in a row that the annual expense growth rate (4.6%) was higher than the annual revenue growth rate (4.1%).

"The median annual expense growth rate declined in FY 2013 compared to FY 2012, demonstrating a focus on cost containment among hospital operators and the shifting of care to a lower-cost and more efficient setting… The FY 2013 not-for-profit hospital preliminary medians point to continuing operating pressures in the industry. Both the operating margins and operating cash flow margins dropped as revenue growth continued to slow and expense growth continued to surpass revenue growth," the report says.

These preliminary medians are based on FY 2013 audited financial statements of about 45% of Moody's entire rated portfolio. Final medians for FY 2013 will be released this summer.

Moody's analyst Jennifer Ewing says the factors contributing to this grim economic report include low rate increases from commercial payers, Medicare and Medicaid rate cuts, a shift in payer mix to more governmental payers, the shift away from inpatient stays to more outpatient and observation care, and an increase in high-deductible health plans.

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