Moody's: Children's hospitals see stronger financials than adult hospitals in FY 2015

Children's hospitals saw stronger margins and lower leverage than adult hospitals in fiscal year 2015, according to Moody's Investors Service annual medians report. Those results were driven, in part, by children's hospitals' strong patient demand, limited competition and greater fundraising opportunities.

Here are five things to know from the Moody's report.

1. Operating cash flow margins for children's hospitals are consistently about 4 percent percentage points higher than for adults, according to Moody's. This is largely attributed to demand for high-acuity services. Strong fundraising, typically not a core strength of adult hospitals, also helps bolster cash flow margins for children's hospitals, Moody's said.

2. Children's hospitals have stronger liquidity and lower leverage than adult hospitals due to their better margins and fundraising capabilities, according to Moody's. "These financial strengths support robust capital spending to meet strong demands for clinical services and research programs," the agency said.

3. Children's hospitals also topped adult hospitals in regards to meeting patient demand. This is partly due to limited competition and favorable growth strategies at children's hospitals, according to Moody's. The agency said median admissions at children's hospitals grew 5.6 percent in FY 2015, compared to 2.8 percent at adult hospitals. Moody's attributed some of the growth to adult hospitals closing pediatric practices. Moody's said it also expects children's hospitals to continue to boost patient volume through partnerships and expanding services.

4. Although Children's hospitals saw stronger operating margins and lower leverage than adult hospitals in FY 2015, children's hospital revenue growth lagged behind adult hospitals, Moody's said. The 6.2 percent median revenue growth for children's hospitals compared to the 7.5 percent at adult hospitals, marks the first time children's hospitals fell behind in at least eight years. This was predominantly attributed to gains in insurance coverage from Medicaid expansion and public exchanges, from which children's hospitals benefit less due to most children already being insured through Medicaid or the Children's Health Insurance Program, the agency said. "Children's hospitals look to regain the lead, though, as growth rooted in Medicaid expansion and the healthcare exchanges moderates at adult hospitals," Moody's added.

5. In the future, dependency on Medicaid funding also poses the greatest risk to revenue for children's hospitals, according to Moody's. Children's hospitals derived a median 52 percent of gross revenue from Medicaid versus 14 percent for adult hospitals in FY 2015. Moody's said potential Medicaid funding changes under President-elect Donald Trump's new administration could affect the top revenue stream at children's hospitals, depending on state action.


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