The outlook revision comes amid uncertainty regarding federal healthcare policy for nonprofit hospitals and after the sector experienced a larger-than-expected drop in cash flow this year.
“The cash flow spike from insurance expansion under the Affordable Care Act in 2014 and 2015 has largely worn off, but cash flow has not stabilized as expected because of a low revenue and high expense growth environment,” Eva Bogaty, a Moody’s vice president, said.
The negative outlook also incorporates Moody’s expectation that hospital bad debt will continue to rise.
“While the ACA’s arrival heralded a drop in ‘bad debt,’ or unpaid hospital bills, from 2014-16, bad debt rebounded in 2017 and will continue to grow at a rate of 6 percent to 7 percent in 2018,” said Ms. Bogaty. “Rising copays and use of high deductible plans will increase bad debt for both expansion and non-expansion states.”
This marks the first time in several years Moody’s has issued a negative outlook on the nonprofit healthcare and hospital sector. The debt rating agency has maintained a stable outlook on the sector since August 2015.
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