Moody's: Outlook Not Good For Nonprofit Hospitals

Originally Posted on The NonProfit Times

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Moody's Investor's Service announced Tuesday that the outlook for nonprofit hospitals in 2013 continues to be negative, despite revenue growth remaining positive.

The negative outlook means it will be harder for these organizations to access the capital market.

Moody's, the bond credit rating business of New York City-based Moody's Corporation, declared that a variety of outside pressures continue to restrict growth of hospitals, including federal cuts to medical spending and limited reimbursement increases from insurers. All of these factors lead the credit agency to continue its negative assessment of the industry.

"Our sector outlook has been negative since 2008, reflecting the lasting impact of the recession on patient volumes, significant challenges facing the industry resulting from changes in how hospitals are paid, and heightened pressure from businesses and all levels of government to lower the cost of healthcare services," said Daniel Steingart, a Moody's Assistant Vice President -- Analyst and lead author of the report entitled "US Not-for-Profit Healthcare Outlook Remains Negative for 2013."

The report also explained that the nonprofit hospital industry is already facing more than $300 billion in reductions to Medicare payments through 2019 as part of the Affordable Care Act. While the recent fiscal cliff deal did not include any major spending cuts to healthcare, the upcoming budget negotiations in Washington are likely to focus on those, as both Congress and the White House believe something needs to be done to address the rising costs of healthcare.

While the overall outlook is negative, the report indicates it could have been worse if not for some positive developments. The most notable of these has been the fact that hospital performance, including revenue growth, has remained optimal.

"Operating margins and leverage metrics have not deteriorated in recent years, despite negative headwinds, because management teams have successfully managed expenses in light of weak patient volumes and less robust revenue growth," said Steingart.

Moody's noted that their outlook expresses the expectation for credit conditions over the next 12 to 18 months. You can read the full report on their website.