Moody's: The top revenue pressures facing hospitals
Annual report warns of slow revenue growth
Topics: Finance, Margin Performance
January 26, 2012
In its 2012 outlook, Moody's Investors Service reviews the top margin pressures facing not-for-profit hospitals and warns that revenue growth may be slow across the next 18 months.
The agency downgraded its sector outlook from stable to negative in November 2008, citing disruptions in the credit and liquidity markets, declines in patient volumes and weakened financial performance in light of the ailing economy. In 2011, hospitals faced substantial federal and state budget deficits, which were exacerbated when stimulus funding expired in June, as well as high unemployment and uncertainty about federal health reform law implementation.
Understand the pressures—and your strategies to respond—with this Health Care Advisory Board infographic. (Excerpt below.)
According to the agency's annual report, the negative outlook for 2012 is driven by increased revenue pressures and challenges associated with the transition to new health care delivery models and regulatory changes. In addition, the agency expects continued economic sluggishness, which will drive down volumes, weaken payer mix, and stress operating results.
Over the next two years, Moody's anticipates weak revenue growth in the face of "unprecedented threat to revenues" on all fronts, including:
- Continued state and federal reimbursement declines through efforts to control government spending;
- The ongoing impact of federal health reform;
- Increased federal scrutiny of programs like disproportion share funding;
- Increased use of Recovery Audit Contractors; and
- Pressure on commercial insurance rates.
Meanwhile, expenses related to pensions, capital investments funded with cash reserves, and continued equity and bond market volatility will keep driving balance sheet pressures.
Overall, the agency predicts a struggle to meet expense growth, calling it "the single most significant challenge that hospital currently face."
The report notes that long-term changes in the sector have favored the few large, well-managed hospitals and health systems, while generating stronger competition for the many smaller hospitals. As such, the report says that credit trends "have been negative and will remain so until the next wave of regulator and business model changes are more clearly established in coming years."
However, the report also outlines some positive credit factors in the sector. According to Moody's, continuing mergers-and-acquisitions activity presents a long-term positive for the industry and an exit strategy for bondholders. In addition, the report notes that strengthening management and governance is indicated by stable financial performance and expense reductions (Moody's report, 1/25).
You May Also Like
-
September 16, 2011
Study
| Health Care Advisory Board
This study explores the major forces shaping hospital margins across the next decade and provides best practices for developing a comprehensive margin improvement strategy.
-
September 16, 2011
Calculator/Forecaster
| Health Care Advisory Board
Generate institution-specific five- and 10-year outlooks for payer mix, case mix, volume, occupancy, and inpatient operating margins; useful for exploring the sensitivity of margin projections to changes in underlying market forces.
More from the Daily Briefing
View all
