Operating cash-flow margins for children's hospitals are consistently higher than for adult hospital margins, but over-reliance on Medicaid could change that.
Children's hospitals continue to hold an advantage over adult hospitals in the areas of patient demand, limited competition and fund-raising opportunities, all of which create stronger margins and lower leverage.
However, those advantages are offset by an over-dependence on Medicaid, which accounts for about 52% of gross revenues nationwide, compared to about 14% of gross revenues for adult acute care hospitals, according to analysis from Moody's Investor Service.
"Potential changes to federal Medicaid funding under the new presidential administration could negatively impact children's hospitals, depending on how individual states allocate Medicaid payments to hospitals," the Moody's analysis stated.
Millions Could Lose Medicaid Coverage Under Trump Plan
Those potential changes include a proposal to block grant funding that would give states greater flexibility in determining how and how much Medicaid dollars are spent.
Moody's also noted that children's hospitals don't benefit as much from the Medicaid expansion as adult hospitals because most children are already insured through Medicaid or the Children's Health Insurance Program (CHIP).
Children's hospital revenue growth trailed adult hospitals for the first time in 2015, although a return to historical patterns is likely, Moody's reported. The 6.2% median revenue growth rate lagged behind the 7.5% at adult hospitals, the first time children's hospitals fell behind in at least eight years.
Children's hospitals look to regain the lead, though, as growth rooted in Medicaid expansion and the healthcare exchanges moderates at adult hospitals.
Operating cash-flow margins for children's hospitals are consistently about 4% higher than for adult hospital margins, due to demand for more profitable, high-acuity services. Annual fund-raising, typically not a strength of adult hospitals, also drive margins at hospitals for children, Moody's found.
With better margins and fund-raising capabilities, children's hospitals have stronger liquidity and lower leverage than adults. These financial strengths support robust capital spending to meet strong demands for clinical services and research programs.
In addition, children's facilities tend to be newer, with a median age of plant at 8.5 years in 2015, compared to 11 years for adult hospitals.
Volume growth for children's hospitals has topped adults due to limited competition and favorable growth strategies. Median 2015 admissions at children's hospitals grew 5.6%, compared to 2.8% at adult hospitals, according to the analysis.
Some of that growth is attributable to adult hospitals closing their pediatric practices. Children's hospitals will also continue to boost volumes through partnerships and expanding services, Moody's reported.