Fitch: Sequestration Cuts Will Put Non-Profit Hospitals in a Bind

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Non-profit hospitals face a tough Medicare reimbursement road ahead following the release of the Office of Management and Budget's report on sequestration cuts, according to a report from Fitch Ratings.

Last week, the OMB detailed the effects of the sequestration cuts, noting that providers will lose roughly $11.1 billion this upcoming year in Medicare payments if Congress fails to pass cost-cutting legislation. Medicaid spending would be exempted.

Many non-profit hospitals within Fitch's rated portfolio have incorporated a reduction in Medicare reimbursement in their 2013 budget. Although Fitch analysts believe the sequestration cuts will eventually be "averted or modified," they said non-profit hospitals in particular will have to brace for a reality that features less payments for Medicare and Medicaid patients, which usually represent 60 percent of a hospital's revenue base.

"Fitch does not expect more clarity on funding levels until after the 2012 presidential election in November. However, despite the outcome of the elections, Fitch believes that the fee-for-service reimbursement environment with limited accountability is unsustainable," according to a Fitch news release. "Those providers that will be able to handle a change in reimbursement levels are the ones that remain focused on operating efficiency, resource allocation, physician alignment and investment in electronic medical records."

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