Moody's: Outlook remains negative for nonprofit healthcare

Due to factors such as weak growth in operating cash flow, the outlook for the U.S. nonprofit healthcare industry remains negative in 2015, according to Moody's Investors Service.

Next year, Moody's expects operating margins will weaken as hospitals struggle to simultaneously operate under the fee-for-service model and models that focus on improving healthcare quality and reducing healthcare costs, such as those that are part of the Patient Protection and Affordable Care Act.

Concerning the PPACA, the financial effects of the health reform law have varied across the nation. For instance, in states that have expanded Medicaid, bad debt has fallen by an average of 5.6 percent. However, in non-expansion states, bad debt has grown 6.8 percent.

Although Moody's projects median operating cash flow growth to range from negative 0.5 percent to 1.5 percent across all nonprofit systems next year, large systems — those with more than $2 billion in annual revenues — are expected to achieve growth of 3 percent to 4 percent. However, Moody's anticipates hospitals with annual revenues less than $1 billion will have negative operating cash flow growth in 2015.

"The largest hospitals are getting stronger, while the smaller hospitals get weaker," said Daniel Steingart, vice president and senior analyst at Moody's. "The largest hospitals have long generated stronger operating margins and revenue growth owing to factors such as their economies of scale and ability to drive revenue growth through expanded services."

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