Medicare drop exacerbates not-for-profit outlook
Hospitals facing Medicare payment cuts totaling $440 million this fall have begun scouring budgets for cuts of their own. But they may not find enough there to satisfy one major ratings agency that says not-for-profit hospitals’ outlook remains bleak.
Starting in October, the beginning of the federal fiscal year, Medicare will pay hospitals less for hospitalized patients than it did in 2010. The scheduled 0.4% reduction to inpatient payments, Moody’s Investors Service said in a report last week, is “an unambiguous credit negative for not-forprofit hospitals and a key driver to our maintaining a negative outlook for the industry.” It’s also the first time in more than a decade that Medicare similarly reduced hospital rates, said Moody’s, citing the 1997 Balanced Budget Act, which strained hospital finances and weakened credit ratings.
Mark Pascaris, a vice president and senior analyst for Moody’s healthcare team, said the stress on revenue is expected to continue after 2011 and Medicare rates will grow more slowly than in prior years—or not at all. Medicare may make further rate cuts, he said.
“We’re not anticipating we’re going to see much in the way of increases,” from Medicare, said Steven Glass, chief financial officer for the Cleveland Clinic. Glass said that leaves the system’s 11 hospitals to grapple with stagnant Medicare payment rates as the economy continues to struggle and operating costs rise. “Certainly, we are experiencing inflation,” he said.
Hospitals and health systems say the October drop in Medicare rates has them looking to make up lost revenue with efforts to curb expenses or increase payments elsewhere.
To maintain its margin, Glass said the Cleveland Clinic regularly evaluates its costs and capital spending, and Medicare’s reductions will increase the pressure on operating performance.