Ratings agencies glum on not-for-profits in 2012
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.