Gloomy prospects

Rat­ings agen­cies glum on not-for-prof­its in 2012

Modern Healthcare - - THE WEEK IN HEALTHCARE - Me­lanie Evans

The fi­nan­cial picture in 2012 is some­what dreary for not-for­profit hos­pi­tals as the econ­omy re­mains weak and law­mak­ers keep com­ing back to health­care pro­grams for sav­ings, ac­cord­ing to the na­tion’s two largest bond-rat­ing agen­cies

Moody’s In­vestors Ser­vice said in a re­port last week that its out­look for not­for-profit hos­pi­tals is neg­a­tive, de­scrib­ing slug­gish rev­enue growth as the “sin­gle most sig­nif­i­cant chal­lenge hos­pi­tals cur­rently face.”

Pay­ment rates for Medi­care, which ac­counted for 43% of rev­enue among hos­pi­tals rated by Moody’s, saw a mod­est in­crease in Oc­to­ber af­ter a de­cline the prior year, but rates may be cut be­cause of ef­forts to re­duce the fed­eral deficit. Re­cent Med­i­caid re­duc­tions by some states will also strain hospi­tal bud­gets this year, ac­cord­ing to the re­port. Mean­while, com­mer­cial in­sur­ers have granted lower rate in­creases.

Moody’s said use of health­care ser­vices will con­tinue to drag for the com­ing year to 18 months. “Over the longer term, we ex­pect some pickup in in­pa­tient vol­umes as the pop­u­la­tion con­tin­ues to age, but we do not ex­pect a re­turn to the growth lev­els prior to the re­ces­sion.”

Stan­dard & Poor’s, mean­while, de­liv­ered a sim­i­lar take. Not-for-profit hos­pi­tals cut costs or merged to im­prove per­for­mance in 2011, but the sec­tor faces con­tin­ued stress as in­sur­ers squeeze pay­ment rates and health re­form in­creases pres­sure to treat pa­tients out­side costly hos­pi­tals, ac­cord­ing to S&P’S re­port on the sec­tor’s out­look.

“We be­lieve that credit qual­ity and rat­ings will be neg­a­tively af­fected, per­haps as early as 2013, due to an in­creas­ingly dif­fi­cult op­er­at­ing en­vi­ron­ment,” the rat­ing agency said. “Con­di­tions in­clude tighter rev­enues, weaker payer mixes, gen­er­ally de­clin­ing to at best sta­ble in­pa­tient vol­ume trends, the lin­ger­ing im­pact of the re­ces­sion and health re­form.”

Medi­care’s mar­ginal in­crease for in­pa­tient rates last Oc­to­ber and the threat of a 2% re­duc­tion in fed­eral fis­cal 2013 were among the rea­sons S&P said hos­pi­tals would see con­tin­ued pres­sure on rev­enue. Mean­while, lower rate in­creases from com­mer­cial in­sur­ers are “an im­por­tant con­trib­u­tor to our view of a weak­en­ing rev­enue out­look,” ac­cord­ing to the re­port.

Con­tin­ued cuts to hospi­tal op­er­a­tions to off­set the strain on rev­enue will be dif­fi­cult to sus­tain, S&P said in the re­port, and ef­forts to grow by mar­ket share gains can be costly. The rat­ings agency up­graded credit rat­ings for 50 not-for-profit hos­pi­tals and health sys­tems with com­bined debt of $22.5 bil­lion last year and down­graded 31 with com­bined debt of $5.8 bil­lion, the re­port stated.

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