Moody's: US nonprofit hospitals see decrease in median operating margin

U.S. nonprofit hospitals' median operating margin fell in fiscal year 2016 as expenses grew, according to preliminary financial data compiled by Moody's Investors Service.

The data is from the agency's annual report, "Not-for-profit Healthcare and Public Hospitals — US: Preliminary 2016 Medians Skew Lower As Revenue and Expense Pressures Hinder Profitability." For the report, Moody's examined audited fiscal year 2016 financial statements for 150 hospitals and health systems.

Here are seven things to know from the analysis.

1. Growth in expenses outpaced growth in revenues at hospitals. Annual operating expenses grew 7.5 percent in fiscal year 2016 compared to the year prior, Moody's said. Annual operating revenue grew 6.6 percent during the same time period.

2. Overall, the analysis found hospitals' median operating margin decreased from 3.4 percent in fiscal year 2015 to 2.7 percent the following year, according to Axios. In 2014, the median operating margin was 2.2 percent.

3. Moody's attributed the decline in profitability to lower reimbursement and rising expenses.

"Over the next year, rising labor and pharmaceutical costs will continue to pressure the expense growth rate," Beth Wexler, a vice president at Moody's, said in a prepared statement. "Revenue growth will also temper amid declining reimbursement from both private and governmental payers."

4. The Moody's analysis also found the three-year operating revenue compound annual growth rate was 6.2 percent in fiscal year 2016, compared to the three-year expense CAGR of 5.8 percent.

5. Median operating cash flow was $75.9 million in fiscal year 2016 compared to $76.4 million in the year prior. Moody's said the change reflected growing expenses and pressure on top line revenue growth.

6. Median days cash on hand was 204.8 in fiscal year 2016 compared to 223.4 the year prior.

7. Median unrestricted cash and investments to total debt declined from 160.1 percent in fiscal year 2016 to 158.8 percent in the year prior.

 

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