Hos­pi­tals squeezed as rev­enue growth slows to all-time low

Modern Healthcare - - NEWS - By Beth Kutscher

Signs are pil­ing up that many hos­pi­tals will des­per­ately need any boost they can get out of the health in­sur­ance gains gen­er­ated by the health­care re­form law.

Rev­enue at not-for-profit hos­pi­tals grew at an all-time low of 3.9% last year with slug­gish gains in in­pa­tient and out­pa­tient ac­tiv­ity, ac­cord­ing to a re­port on 2013 me­di­ans from Moody’s In­vestors Ser­vice. In com­par­i­son, hos­pi­tal rev­enue in­creased 5.1% in 2012 and his­tor­i­cally has grown about 7% a year.

Ear­lier this month, Stan­dard & Poor’s sim­i­larly found that health sys­tem mar­gins had de­clined to 2.2% in 2013, the first time since 2008 that mar­gins didn’t in­crease. At stand­alone hos­pi­tals, mar­gins de­clined to 2.1%, down from 2.6% in 2012.

And a re­cent Mod­ern Health­care anal­y­sis of 179 health sys­tems and hos­pi­tals found that 2013 mar­gins tight­ened to 3.1%, down from 3.6% the pre­vi­ous year. A to­tal of 61.3% of the or­ga­ni­za­tions in the anal­y­sis, which in­cluded acute-care, posta­cute-care and re­ha­bil­i­ta­tion hos­pi­tals, saw their mar­gins shrink year over year.

Moody’s at­trib­uted the squeeze to the in­creased pop­u­lar­ity of high­d­e­ductible health plans that lead peo­ple to post­pone care or seek out low­er­cost re­tail clin­ics. “Pa­tients have more skin in the game,” said Jen­nifer Ewing, a Moody’s an­a­lyst.

The vol­ume de­cline also is com­ing amid a num­ber of Medi­care re­im­burse­ment cuts, in­clud­ing the ones known as se­ques­tra­tion trig­gered by the 2012 Bud­get Con­trol Act and re­duc­tions in dis­pro­por­tion­ate-share hos­pi­tal pay­ments un­der the Pa­tient Pro­tec­tion and Af­ford­able Care Act. In ad­di­tion, Medi­care’s two-mid­night rule has made it harder for hos­pi­tals to bill short stays as in­pa­tient care, and com­mer­cial in­sur­ers have of­fered lower pay­ment rate in­creases.

As ex­penses grew faster than rev­enue for the sec­ond con­sec­u­tive year, 25% of hos­pi­tals in the Moody’s sam­ple had an op­er­at­ing loss in 2013, up from 17.2% the pre­vi­ous year and 13.8% in 2011.

Hos­pi­tals con­tin­ued to in­crease their in­vest­ments in in­for­ma­tion tech­nol­ogy and buy­ing physi­cian prac­tices. But tighter mar­gins mean less cap­i­tal to rein­vest in their op­er­a­tions. Year-to-date bor­row­ing also de­clined.

“Our sense is that many hos­pi­tals are ju­di­ciously re-ex­am­in­ing their cap­i­tal spend,” said Lisa Gold­stein, a Moody’s an­a­lyst. When they do spend money, they’re spend­ing less on their fa­cil­i­ties as they fill fewer beds.

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