Moody's: Nonprofit hospital revenues, cash flow hit record low in 2013

Nonprofit hospital cash flow margins and revenue growth reached record lows in fiscal year 2013, according to a report from Moody's Investors Service.

Financial medians for 2013 show nonprofit hospital operating revenue growth was 3.9 percent, down from 5.1 percent in 2012 and far below historical growth rates, which often topped 7 percent. Expense growth also outpaced operating revenue growth for the second year in a row, demonstrating an unsustainable trend, according to Moody's.

Expenses growing faster than revenues led to decreases in operating margins and operating cash flow margins. The operating cash flow margin in 2013 reached a record low of 9 percent. One of the main factors driving slower revenue growth is the shift from inpatient to outpatient care. Last year's medians indicated inpatient admissions decreased, while outpatient services grew. However, the growth rate for outpatient admissions also slowed in 2013, which potentially signals a drop in demand for healthcare overall, according to Moody's.

Increased Medicare exposure also dampened revenue growth in 2013, with median gross revenues derived from Medicare reaching a high point of 44.4 percent. The Patient Protection and Affordable Care Act's individual mandate and Medicaid expansion in some states could soften the blow of lower volumes and more Medicare patients, but Moody's predicts hospitals probably won't benefit from those factors until 2015.

"We expect revenue growth will remain under pressure in 2014," said Moody's Analyst Jennifer Ewing. "We expect continued financial weakening due to volume declines in a predominantly fee-for-service environment, reinforcing our negative outlook on business conditions for not-for-profit hospitals."


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