Hospitals squeezed as revenue growth slows to all-time low
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.