"These cuts are the beginning of a series of Medicare cuts that we see coming. The 2% cuts are in addition to Medicare cuts in the Affordable Care Act, and we see additional cuts upcoming," Vennekotter says.
"In many cases [providers] lose money on Medicare reimbursement—the money they receive is less than what it actually costs them to provide the care. Given that the population will continue to age, and we'll see baby boomers becoming eligible for care and increasing their use of services, there is a sense of urgency to improve financial performance. The way to do that is to lower the expense base," she adds.
Moody's Investors Service rates 460 health systems in its portfolio, and Vennekotter says some organizations have been more successful than others when it comes to trimming the budgetary fat.
"Management teams have largely been successful in offsetting the lost revenue, but that is just a median. So you have some larger providers with economies of scale that have been able to do well in the current environment, and you have some smaller, single site hospitals that don't have the economies of scale. We anticipate that they will continue to struggle."
In the report, Moody's lists the 15 not-for-profit hospitals it believes to be the most at risk due to Medicare cuts: