Moody's: Sequestration Threatens Not-For-Profit Hospitals

, April 10, 2013

The 2% Medicare reimbursement cuts mandated by the federal sequestration over the next 10 years pose a big threat to not-for-profit hospitals, says a report from Moody's Investors Service.

In its report, "The Sequester Series: Sequestration's Medicare Reductions Present New Headwinds for Not-for-Profit Hospitals," Moody's finds that not-for-profit hospitals are generally vulnerable to the cuts because they rely heavily on Medicare reimbursements. Hospitals are especially at risk if they have not already budgeted for the cuts or made spending adjustments in preparation for reduced Medicare payments.

"Among all Moody's-rated not-for-profit hospitals, Medicare reimbursements accounted for a median 43.7% of gross patient revenues in 2011, a percentage that has risen steadily for several years. Barring material Medicare reform, this percentage will continue to increase as the U.S. population ages and becomes eligible for Medicare whilst increasing their utilization of healthcare services," says the report.

Sequestration mandates roughly $1.2 trillion in spending cuts over the next decade with $85 billion of those cuts to take place by October. The Centers for Medicare & Medicaid Services estimates that it will reduce reimbursements to healthcare providers by $11 billion in 2013.

"The cuts exacerbate an already challenging operating environment for not-for-profit hospitals as many already face low revenue growth from both governmental and private insurance payers," the report notes.

Sarah Vennekotter, Moody's assistant vice president and analyst and lead author of the report, says not-for-profit hospitals are at financial risk because Medicare is typically their largest payer and more payment reductions are on the horizon.

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