Moody's: Financial Risks Keep Non-Profit Hospital Outlook Negative in 2013

Although non-profit hospitals and health systems experienced positive growth in their revenues last year, the rate of growth is diminishing, which spurred Moody's Investors Service to keep its negative outlook on the sector for this year.

MoodysInvestorsServiceThe three main factors that supported the negative outlook, according to Moody's report, were continued shrinking reimbursements from Medicare, Medicaid and commercial payors, flat patient volume growth due to the still-stagnant economic recovery and the transition to new payment methodologies.

"Our [healthcare] sector outlook has been negative since 2008, reflecting the lasting impact of the recession on patient volumes, significant challenges facing the industry resulting from changes in how hospitals are paid and heightened pressure from businesses and all levels of government to lower the cost of healthcare services," said Daniel Steingart, Moody's assistant vice president, analyst and lead author of the report.

Moody's analysts said of the main challenges, reimbursement reductions from all major payors represent the biggest pressure. The biggest cuts will come from Medicare, where hospitals are facing more than $300 billion in reimbursement reductions through 2019 due to healthcare reform. Analysts said they expect base Medicaid rates to decelerate in the coming years as well.

However, Moody's acknowledged the hospital sector has some positive factors in play. For example, hospital management teams have showed a nimbleness to respond to healthcare reform thus far, as hospitals are still reporting strong cash flow and "favorable leverage and balance sheet metrics," according to the report. In 2011, the average hospital had 165 days cash on hand, the highest since the recession began in 2008.

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