Brief

Moody's sees softening of nonprofit hospital market

Dive Brief:

  • U.S. nonprofit and public hospitals finances have softened compared to a year ago while rising labor and pharmaceutical costs will continue to pressure the expense growth rate, Moody’s Investors Service found in a recent report.

  • Moody’s said medians “show an acceleration in annual operating expenses, with growth of 7.5% from 2015-16 compared to 6.6% growth of annual operating revenue during the same time period.” Uncertainty surrounding healthcare policy will also pose a challenge to the sector, the company said. 

  • Nonprofit hospital financial performance “tempered as margins declined from 2015 levels following two years of strengthening. The reversal in trajectory of profitability demonstrates the stress of lower reimbursement and the material rise in expenses,” said Moody’s.

Dive Insight:

Moody’s report reviewed the FY 2006 financial statements for 150 hospitals, which represent 37% of all rated entities. 

Reimbursement changes are affecting income for hospitals. The three-year operating revenue compound annual growth rate (CAGR) of 6.2% outpaced the three-year expense CAGR of 5.8% for the second consecutive year.

Median operating cash flow slowed to $75.9 million, compared to $76.4 million “as expenses climbed and top line revenue growth was pressured,” said Moody’s. Median days cash on hand also slumped to 204.8 compared to 223.4 and median unrestricted cash and investments to total debt dropped from 160.1% to 158.8%.

Revenue growth will also temper amid declining reimbursement from both private and governmental payers, Moody's added.

Filed Under: Finance Hospital Administration