"The reason we pulled these hospitals is that they have the most exposure to Medicare in our portfolio. These are providers who, in the worst case, have 70% of their gross revenue coming from Medicare," says Vennekotter, noting that on average, these hospitals generate 60% of their gross revenue through Medicare reimbursements.
In addition to the immediate threat created by Medicare cuts, the report says sequestration will also have an indirect effect on some hospitals because it will cause the nation's economic growth to slow down.
"Moody's Analytics looks at the macroeconomics situation going on in the U.S… They have indicated that the GDP growth will be lower than anticipated due to sequestration… We could see some negative economic impact in states that have a large number of federal employees. Hospital providers in those areas may experience patient volume decline as employment stagnates, if people lose their jobs and insurance," Vennekotter says.
Although Moody's outlook for the not-for-profit hospital sector is negative, it says it does not intend to take immediate rating action on any of the hospitals in its portfolio based on the sequestration; instead, it will monitor the credit impact of the cuts over time.