Moody's: Hospitals That Invest in IT, Outpatient Will Win

A new report from Moody's Investors Service says hospitals that put their investment dollars in two primary areas — information technology and outpatient services — are most likely to survive the challenging operating conditions.

Continual declines in inpatient volumes, risk-based payer models and heightened competition from "nontraditional participants" like Wal-Mart and CVS are forcing hospitals to make tough choices, Moody's analysts said. The agency views investments in IT and outpatient strategies as a "long-term credit positive," but they often negatively impact financial statements in the short term.

Moody's said there are three main considerations for hospitals as they develop these new investment strategies.

1. Health IT is necessary, but costly. New IT systems undoubtedly are huge capital investments for hospitals and health systems, with electronic health record systems serving as the poster child for multimillion-dollar installs. However, hospitals that want a shot at long-term success must stomach the high costs. "A well-functioning IT system that integrates [EHR] management, clinical oversight, billing, revenue management and customer interfacing may well be a minimum requirement for organizational success, especially among larger systems," Moody's said in the report.

2. Outpatient is the new inpatient. Inpatient utilization is decreasing for several reasons. Most notably, HHS and CMS have been cracking down on short inpatient stays, which has led to more observation stays, and more services are now available on an outpatient basis. Outpatient services are an essential part of any hospital's strategy, but they also pay less than inpatient services. To offset the revenue losses, many hospital systems are investing more in newer outpatient venues, like ambulatory surgery centers, urgent care centers and standalone emergency departments.

3. Price sensitivity is creating new competitors. High-deductible health plans, insurance shopping through the exchanges and price transparency are spurring patients to look for more low-cost alternatives than their local hospitals. Consequently, "drugstores and unaffiliated outpatient centers are diverting volumes and revenues from traditional hospital providers," Moody's analysts said. To compete, hospitals may have to consider making additional investments or forming partnerships with these providers.

More Articles on Moody's Reports:
21 Hospitals and Health Systems With Strong Finances
Moody's: Nonprofit Hospital Expenses Still Growing Faster Than Revenues
Moody's: Court Decision Bad News for Health Systems With Church Pension Plans

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