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Analysis

Revenue Growth Raises Nonprofit Provider Outlook for 2020, Moody's Says

By Jack O'Brien  
   December 12, 2019

Moody's projects that improved expense management will play an important role for hospitals next year.

Moody's Investors Service boosted the 2020 outlook for nonprofit provider organizations on account of stronger revenue growth.

The ratings agency revised its 2020 outlook for nonprofit hospitals and health systems from negative to stable, according to a report released Monday. 

Operating cash flows will increase by 2% to 3%, due to stronger revenue growth derived from larger reimbursements from Medicare and commercial payers as well as modest growth in patient volumes.

The report is in line with two reports released in September by Fitch Ratings and S&P, which found that nonprofit hospital operating margins have improved in recent years. 

Related: Moody's Calls CHS' Proposed Debt Exchange 'Untenable'

In addition to the expected growth of operating cash flows, Moody's projects that improved expense management will play an important role for hospitals next year. The ratings agency added that the looming nursing shortage will increase labor costs as well.

The ongoing wave of mergers among provider organizations will not only aid in negotiations with commercial payers, but also boost smaller hospitals for capital infrastructure needs and information technology projects.

Related: Moody's Outlook Darkens for Team Health

While there are positive signs for the nonprofit provider space, Moody's warned about obstacles that are likely to linger into 2020. 

One significant demographic challenge facing hospitals is the 'silver tsunami' of baby boomers aging into Medicare, dropping commercial insurance as their medical needs rise. Additionally, providers must address cost issues associated with bad debt and underinsured patient populations.

Health systems also face the continued fight over cuts to Medicaid's disproportionate share compensation fund, the Trump administration's recently proposed final rule regarding price transparency, and the uncertain legal future of the Affordable Care Act.

The ratings agency highlighted concerns about prescription drug pricing proposals that could affect hospitals participating in the 340B Drug Pricing Program.

Related: 3 Strategic Differences Between Nonprofit and For-Profit Hospitals

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


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