Moody's: US for-profit hospital outlook stable as outpatient volumes offset costs, bad debt

A newly released outlook report from Moody's Investor Services for the U.S. for-profit hospital sector shows higher outpatient volumes are counterbalancing the effects of weak inpatient volume trends, small increases in reimbursement rates and rising costs, indicating stability.

Here are seven findings from the report.

1. Moody's analysts expect that aggregate same-facility EBITDA will grow 2.5 percent to 3 percent over the next 12 to 18 months. EBITDA growth will continue to be limited by declining inpatient volume, modest increases in reimbursement and growing costs, but outpatient services will augment volume growth.

2. Same-facility growth in inpatient admissions will average 0 to 1 percent as both commercial and government payers continue to shift volumes to lower-cost outpatient settings. Strong growth in outpatient surgeries will drive even more investment in ambulatory surgery centers.

3. Increasing costs will put pressure on hospital margins. Hospital operators will continue to hire more physicians or acquire physician practices as a means of driving referrals and managing population health. However, these new salaried employees will add costs to the hospital, and physician group operations are typically not very profitable, leading to increased margin pressure.

4. Bad debt will increase. Moody's analysts expect an uptick in bad debt expense as patients become more responsible for a larger portion of their healthcare costs, such as through high-deductible health plans.

5. More value-based payment or alternative payment models will emerge. CMS continues to implement more rigorous payment model changes, such as those that are mandatory as opposed to voluntary. 

6. Consolidation and divestitures will continue to influence capital allocation. For-profit hospital operators will continue to rationalize their portfolios. They will only invest in operations in markets in which they are strong enough to ensure ongoing referral volumes and negotiation leverage with commercial payers.

7. Novel investments will expand services. Hospital operators will continue to look for new ways to invest in growth, including through joint ventures and clinical affiliations, as these arrangements require much lower capital outlays than acquisitions. 

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