Average not-for-profit hospital operating margins would decrease by about 29% if the congressional deficit panel fails to reach a compromise by next week, according to a Fitch Ratings report.
As part of the recent debt deal, a 12-member debt supercommittee must develop and pass by the end of November at least $1.5 trillion in federal spending cuts over 10 years. Failure to do so would trigger a series of across-the-board cuts that could reduce Medicare spending on hospitals by up to 2%.
For the report, analysts evaluated public and private insurer revenue for 290 tax-exempt, Fitch-rated hospitals; the hospitals' average operating margin was 2.6%. With no debt deal, and projecting that Medicare revenue would fall between 1% and 5%, Fitch calculated that:
- Hospitals' average net patient revenue would drop by 0.39% for each percentage point Medicare reimbursement cut; and
- Average operating profitability would drop by an average of 14% for each percentage point cut.
The ratings agency did not factor in possible hospital measures to offset decreased Medicare revenue.
According to Fitch, hospitals with weaker credit ratings would be most affected by the cuts because they tend to rely more heavily on Medicare reimbursement. For example, Medicare payments account for 43% of BB-rated hospital revenue, but only 33% of AA-rated hospital revenue (Evans, Modern Healthcare, 11/16 [subscription required]; Kaske, Bloomberg, 11/16).
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Daily roundup: Nov. 17, 2011