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More Medicare Reform, More Struggling Hospitals

Karen Minich-Pourshadi, for HealthLeaders Media, September 12, 2011

Moreover, additional rate reductions could cause institutions with a poor payer mix to see another drop in their credit ratings, decreasing their ability to raise capital from commercial lenders. In a July Moody’s Investor’s Service report, “Medicaid Funding Cuts Add to Credit Strain for U.S. Not-For-Profit Hospitals,” the ratings agency gave U.S. not-for-profit hospitals a negative credit outlook overall. The agency points to “government funding cuts in the Medicare and Medicaid programs” as a major driver for its decision.

“State government budget pressures caused by the great recession of the late 2000s, the slow economic recovery that has followed, and the recent expiration of federal stimulus funding are placing downward rating pressure on U.S. not-for-profit hospitals that rely heavily on Medicaid. We expect Medicaid funding pressures will significantly stress hospital credit quality for at least the next several years,” the report says.

The ratings agency notes that these reimbursement cuts are made worse by the difficulties that hospitals and health systems have had generating revenue growth. Moody’s reports that the preliminary median revenue growth rate for nonprofit hospitals was 4.2%—the lowest rate in more than a decade and a sharp decline from the 2009 rate of 6.5% and the 2008 rate of 7.0%.

“Revenue growth has been stymied on numerous fronts: declines in patient volumes, higher levels of uncompensated care, less favorable contracts with commercial payers, and, most significantly, reductions in federal Medicare reimbursement rates, a challenge which we believe will likely intensify given ongoing federal budget challenges. Medicaid reductions are creating yet another strain on top-line revenue growth that hospital management teams must address,” the report states.

Tripp Umbach, a firm specializing in economic impact studies, released a new analysis late last week saying that a 2% cut in Medicare will translate to a projected loss of approximately $41 billion over the next 10 years for hospitals.

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