Improved Medicare Solvency No Panacea for Nonprofit Hospitals

Slower than projected spending bought Medicare an extra two years of solvency before it runs out of money in 2026, but hospital systems have a long way to go before they can rest at ease with their credit forecast, says Moody's Investors Service Vice President Marc Pascaris.


True, the federal budget deficit is shrinking faster than anticipated and Medicare spending growth has hit the brakes, Mr. Pascaris says, but there is still no fix for the program in sight, and government funding is still highly vulnerable to future cuts. "We've had a negative outlook for nonprofit hospitals since 2008. That's not going to change, certainly not any time soon," he says.


Still, he continues, given that Medicare payments make up 44 percent of nonprofit hospitals' gross revenues on average, according to Moody's, the Medicare trustees report claiming there is more time to figure out a fix is a rare piece of good credit news for the nonprofit sector.


"There will continue to be pressures on Medicare spending, some of which have been hardwired in," he says. The Patient Protection and Affordable Care Act slashed $105 billion from certain Medicare reimbursements such as disproportionate share hospital payments. In addition,Medicare payments took a 2 percent hit that took effect in April thanks to sequestration.


Restructuring payments will still be a necessary component to keeping Medicare viable longer, Mr. Pascaris says, but the extra time and downward pressure on expenses allow policymakers to devote more time to craft a reform plan rather than rely on urgent blanket cuts. Providers can also take advantage of more preparation time before future reimbursement reductions.


"Serious individuals know Medicare is still a challenge. Medicare and Medicaid are still the single biggest portion of federal budget. Something has to happen long term," he says. But, in light of the trustees' report, "Perhaps this gives members of Congress time to come up with thoughtful structural changes to the program."


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