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Moody's sees revenue bounce-back for hospitals

May 28, 2015

    Dan Diamond, Executive Editor

    Moody's latest medians report is out, and it's a useful barometer of hospital performance.

    The ratings agency on Wednesday released its preliminary not-for-profit hospital medians report—the first of two annual reports that Moody's issues every summer—and I've flagged four interesting takeaways for health care leaders.

    Revenue growth bounced back, a bit: After several years of revenue "slowth"—slowing growth—not-for-profit hospitals saw median revenue growth rise to 4.7% in 2014. That's still well below historic rates; hospitals' median revenue growth a decade ago was nearly 9%, or roughly double what it was last year. But it's a sign of optimism for hospitals after revenue growth dipped to a record low of 3.9% in 2013.

    Expense growth remains low: Revenue growth outpaced expense growth last year, which reflects a broader trend: Expense growth has fallen from 5.5% in 2012 to 4.6%, as administrators continue their search for ways to tamp down costs. One strategy has been to cut back spending on major projects, and you can see the effects of that in the capital spending ratio—it fell to 1.1:1 in 2014, down from 1.3:1 in 2012.

    Utilization trends were "generally favorable": While inpatient admissions continued to decline across the sample, Moody's noted that hospitals saw nearly 1% growth in combined admissions and observations stays. Meanwhile, outpatient visits and surgeries continued to grow at a roughly 2% annual rate.

    Cash and investments increased again: The recovering economy lifted hospital revenues in several clear ways, but Moody's hits on one key metric: Hospitals' cash and investments grew by about 10% on average, the second straight year of strong performance. 

    There are two important caveats when interpreting Moody's preliminary medians report. First, the sample size (and specific participants) varies somewhat year over year, so it's an imperfect way to track the sector's annual performance. Second, this is just the preliminary report, based on hospitals that had a fiscal year-end of September 2014; about half of Moody's-rated hospitals were left out. When those hospitals are added, overall performance traditionally ticks down. 

    But as a directional measure, Moody's report is helpful; it's the latest reminder that 2014 was a stronger year for the not-for-profit hospital sector, as the effects of the Affordable Care Act and a recovering economy boosted revenue.

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