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US For-profit Hospital Outlook Holds Stable

News  |  By John Commins  
   March 31, 2017

Moody's foresees modest revenue growth, flat margins over the next 12 to 18 months; Profit margins will stabilize after a significant drop between 2015 and 2016.

The outlook for the for-profit hospital industry remains stable over the near term, with earnings expected to grow in the low-single digits over the next 12 to 18 months, while volume and pricing trends will continue to be modestly positive, Moody's Investors Service says.

"Positive same-facility revenue growth and flat margins drive our stable outlook for the US for-profit hospital sector," Moody's Senior Vice President Jessica Gladstone said in a media release Thursday.

"Aggregate EBITDA will grow between 2.5% and 3.5% over the next year or so. Margins will hold steady as company-specific actions offset multiple industry challenges, including higher wage and benefits expense stemming from nursing shortages and increased physician employment."

Gladstone says many companies' margins will benefit as they integrate acquisitions and divest less-profitable hospitals and other facilities.

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Moody's projects patient volumes to increase 1% to 2% over the next 12 to 18 months, with declining unemployment and an aging population among the macro trends that will spur demand for healthcare.

However, structural shifts in payer programs that to reduce utilization and the cost of care by shifting patients to lower-cost settings will offset these positive trends, Moody's says.

Higher private payer rates will be the main driver of revenue growth over Moody's outlook period. Medicare rates for inpatient services will rise, though cuts to laboratory and outpatient reimbursement and reduced Medicaid disproportionate share hospital payments will constrain growth.

Hospitals will continue to employ specialist physicians and make capital improvements for more profitable procedures, contributing to pricing growth.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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