Cloudy forecast for industry

Moody's: Not-for-profit hospital outlook remains negative

Revenue growth and patient volumes continued to lag in fiscal year (FY) 2010, according to a new Moody's report, which predicted that the trend would continue in FY 2011 and FY 2012.

The agency also forecast that revenue growth would bottom out in FY 2013, given lower admissions and pending cuts to Medicare and Medicaid reimbursement. 

Latest medians data

Based on audited financial statements for 401 hospitals and single-state health care systems, Moody's cited negative factors that include:

  • The median operating revenue dropped to a decade low of 4%;
  • The rate of inpatient admissions growth fell to -0.4%; and
  • Outpatient indicators—such as ED visits, outpatient visits, and outpatient surgeries—also showed slower growth rates.

However, expense growth also dipped to a decade low of 4%. Moody's pointed to hospitals' more aggressive cost control strategies, including efforts to curb salary and benefits cost growth, which decreased to 4.1% in FY 2010 from 5.7% in FY 2009. Median operating margin also increased to 2.4% last fiscal year, compared with 2.3% in FY 2009, and the median operating cash flow margin increased to 9.2%, up from 9% in FY 2009.

However, Moody's notes that although stable revenue and expense growth rates resulted in stable margins, 78 hospitals and health systems reported operating losses in FY 2010, up 5.4% from FY 2009, when 74 hospitals reported losses.

Agency says sector will continue downturn through 2012

"Operating pressure in place when the outlook was changed to negative in October 2008 are fully captured in the underlying trends shown in the fiscal year 2010 medians—namely weaker revenue and volume growth trends," Moody's said. According to the report, high unemployment, uncertainty surrounding health reform, and looming Medicare cuts support the agency's negative outlook for the sector. Moody's said it expects weak revenue and volume trends to continue through FY 2011 and FY 2012, which likely will result in a downturn in next year's median data.

However, the ratings agency noted that intense management focus on reining in operating spending boosted operating measures and debt coverage ratios. For example, total cash and investment reached a five-year high, after median absolute liquidity increased by 12.5% in FY 2010 and median unrestricted cash and investments rose to $201.8 million last fiscal year, up from $181.3 million in FY 2009 (Moody's report, 8/30; Moody's release, 8/30; Evans, Modern Healthcare, 8/31 [subscription required]).

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