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April 4, 2017

Moody's predicts stable financial outlook for for-profit US hospitals

Daily Briefing

    The financial outlook for for-profit U.S. hospitals should remain stable in the short-term, according to a Moody's Investors Service report released Thursday.

    Moody's projected that for-profit hospitals in the United States will see earnings increases in the low-single digits throughout the next 12 to 18 months. During that time, pricing and volume trends should be modestly positive, according to Moody's.

    For instance, the organization predicted that patient volumes will increase by 1 to 2 percent over the next 12 to 18 months, largely because an aging U.S. population and declining unemployment in the country could spur rising demand for health care services. However, Moody's also predicted that changes to payer programs intended to reduce health care utilization and costs would offset those positive trends.

    According to Moody's, "Increased private payer rates will be the main driver of positive revenue growth, driving [2 to 3 percent of] pricing growth" in the near-term. In addition, Moody's predicted that "hospitals will continue to employ specialist physicians and make capital improvements in order to offer more profitable procedures, contributing to pricing growth." Further, Moody's noted that Medicare payment rates for inpatient health care services will increase, but reductions to laboratory, outpatient, and disproportionate share hospital payments will constrain revenue growth driven by public payers.

    Jessica Gladstone, SVP at Moody's, said, "Positive same-facility revenue growth and flat margins drive our stable outlook for the U.S. for-profit hospital sector." She added that Moody's expects "aggregate [earnings before interest, tax, depreciation and amortization (EBITDA)] will grow between 2.5 percent and 3.5 percent over the next year or so" and "margins will hold steady as company-specific actions offset multiple industry challenges, including higher wage and benefits expense stemming from nursing shortages and increased physician employment."

    Further, Gladstone said many hospitals' margins will benefit from both acquisitions and divestitures in the near-term (Commins, HealthLeaders Media, 3/31; Byers, HealthcareDIVE, 4/3).

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