Nonprofit and public health systems will need to show flexibility and higher liquidity to compete in the healthcare sector going forward, Moody’s Investors Service said in a new report.
Hospitals will need to “expand patient access, capitalize on digital efficiencies and recruit top talent, while maintaining financial flexibility,” to remain viable. Balancing investments, digitization and operational funding will be important to health systems’ overall credit quality, according to the report.
In the coming years inpatient beds will continue to decline and hospitals will essentially become “large intensive care units,” Moody’s predicted.
Many nonprofit health systems face lower patient volume and decreasing reimbursement rates. Payers, such as Anthem, are pushing more care outside of hospital settings. Health systems are thus faced with figuring out how much to invest in outpatient services while transforming inpatient services. This pressure can affect investments, as there were more credit downgrades for nonprofit hospitals in 2017 than in previous years.
These issues will only intensify. Moody’s said health systems will need to balance outpatient investments with maintaining high-margin inpatient services. Outpatient visits usually get lower reimbursements than inpatient stays, and outpatient services in ambulatory or micro-hospital settings also have weaker margins than inpatient services.
“Hospitals that are disproportionately dependent on lower acuity inpatient admissions will be at a disadvantage with the shift toward greater outpatient care, although our data show hospitals with greater dependency on inpatient admissions generally have higher margins,” according to the report.
Some health systems have seen the writing on the wall, and are reacting accordingly. Ascension CEO Anthony Tersigni told employees earlier this year the system will move away from a focus on hospitals and put greater emphasis on outpatient access points and telemedicine. That comes amid a wave of layoffs at Ascension and a big dip in operating income for the first quarter of fiscal year 2018.
Moody's said inpatient capital investment will go increasingly toward higher-acuity, more intensive cases, such as intensive care units and larger operating rooms. Inpatient beds will decrease as consumerism pushes hospitals to transform double-occupancy rooms into single-occupancy.
Digitization will also play an increasingly important role. Hospitals will rely on data analytics to manage care and costs and ultimately predict healthcare needs. Systems will need to improve efficiencies and clinical outcomes while sparking more innovation and protecting data, according to the report.
With widening nursing and physician shortages on the horizon, health systems will need to invest in talent, which will mean more operating costs. Moody’s predicted a more significant move toward improving productivity and redesigning workflows. That could lead to clinical burnout, which may open up a hospital to safety risks, lawsuits and penalties under value-based reimbursement models.
Moody’s expects health systems to increasingly turn to telehealth as one way to help with shortages.
When it comes to credit ratings, operational and funding flexibility will play critical roles. Hospitals will need to figure out which service lines to continue and which ones to drop. Facilities with higher liquidity will be better prepared to weather potential storms in the evolving healthcare market.
Hospitals will need to time capital deployment well. Phasing in large projects can help a system remain flexible, but that can also put them behind competitors. “If not implemented appropriately, execution of simultaneous large-scale strategies will weaken credit quality. However, long-range financial plans and a demonstrated ability to execute and respond to market conditions will be crucial to maintaining a strong credit rating,” Moody’s said.