Looming Budget Cuts Make Hospital Belt-Tightening Increasingly Difficult

John Commins, March 5, 2012

The economy might be on the rebound, but the nation's hospitals should still brace for the possibility of $360 billion in cuts in Medicaid, Medicare, and other federally funded healthcare programs and services over the next decade.

Moody's Investors Service said in a credit outlook that the ongoing reductions in federal funding for healthcare in the fiscal 2013 budget and beyond could make it disproportionately more difficult and more expensive to borrow money for hospitals that rely on Medicare.

"If adopted, the cuts would reduce reimbursement to hospitals, forcing these institutions to continue finding additional expense savings or new sources of revenue to avoid the credit negative deterioration of their profit margins," Moody's said in a budget analysis.

"Most hospitals have been adjusting to negative credit trends since 2008, and many have improved their quality and efficiency substantially. But past operating savings reflect harvesting 'low-hanging fruit,' while future savings will be harder to achieve and will require more wrenching change."

Medicare rate increase reductions installed under the healthcare reforms will enter their third year when the fiscal 2013 budget takes effect in October. Over the next decade, Moody's says, about $268 billion in Medicare reductions could adversely impact funding for critical access hospitals, graduate medical education, and bad debt relief.

John Commins

John Commins is a senior editor at HealthLeaders Media.

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