Moody's Investors Service has released its fiscal year (FY) 2011 preliminary financial medians for not-for-profit hospitals and health systems, predicting continued low revenue growth and confirming its negative outlook for the sector.
The agency's preliminary medians are based on financial data provided by 213 organizations. Moody's will release its final FY 2011 medians this summer, drawing on the agency's full portfolio of about 500 not-for-profit hospitals and health systems.
Revenue shows slight improvement
Not-for-profit hospitals and health systems saw a slowdown in revenue growth because of the recession, Moody's notes, but the sector is now experiencing a mild rebound.
The sector posted 6.5% annual revenue growth in FY 2009, which dipped to 4.5% in FY 2010—a ten-year low. But in FY 2011, sector revenue growth increased slightly to 5.3%.
Moody's anticipates continued pressure on hospital revenues, citing blower reimbursement rates from commercial and public insurers, as well as a continued shift toward outpatient care.
The report notes that inpatient admissions remained flat from FY 2010 to FY 2011.
Operating margins and balance sheets improve
However, Moody's credits hospital management teams with reining in spending, which brought median operating margins to 2.6% in FY 2011, up from 2.4% in FY 2010. Similarly, the median operating cash flow margin was 9.5% in FY 2011, up from 9.4% in FY 2010.
Meanwhile, the report found that not-for-profit hospitals and health systems had an average of 175 days cash on hand in FY 2011, up from 162 days in FY 2010 and 149 days in FY 2009.
In addition, the report noted that the average age of hospital facility increased to 10.3 years in FY 2011, up from 10 years in FY 2010. Health providers are delaying capital investment until the economy further recovers and uncertainties surrounding federal health reform are resolved, according to Moody's.
Medicare and Medicaid exposure grows
The report also indicates that hospitals and health systems continue to rely more on state and federal reimbursement. Medicare in FY 2011 accounted for 43.7% of gross patient revenue at not-for-profit hospitals and health systems, up from 42.5% in FY 2010 and 42.3% in FY 2009.
Meanwhile, Medicaid accounted for 12.8% of gross patient revenue in FY 2011, up from 12.2% in FY 2010 and 11.6% in FY 2009.
According to Moody's, the sector increasingly depended on government insurance programs because of a rise in unemployment—which has decreased access to commercial insurance and shifted individuals into Medicaid, self-pay, and charity care programs. The agency also expressed concern that hospitals may be overly exposed to Medicaid, given the likelihood that states may continue to curb the program's reimbursement rates (Moody's report, 4/30; Moody's release, 4/30).