Moody's: For-profit hospitals look stable with projections of modest revenue growth
- Forecasts for for-profit hospitals remain stable as earnings growth is expected to be in the low single-digits over the next 18 months while volume and pricing trends will continue to be modestly positive, a new Moody's report estimated.
- "Positive same-facility revenue growth and flat margins drive our stable outlook for the US for-profit hospital sector," Moody's SVP Jessica Gladstone said in a prepared statement. "Aggregate EBITDA will grow between 2.5% and 3.5% over the next year or so. 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."
- Moody's expects patient volumes to increase 1-2% over the next 18 months, with declining unemployment and an aging population among the macro trends that will continue to spur demand for healthcare. "However, structural shifts in payer programs that aim to reduce utilization and the cost of care by shifting patients to lower-cost settings will offset these positive trends," the report stated.
While it's an estimate, the report should come as a lifeline of an idea for some hospitals and health systems for the remainder of the year. There's been a spate of recent headlines around the industry including decreasing operating incomes as well as divestitures for many.
"Increased private payer rates will be the main driver of positive revenue growth, driving 2-3% pricing growth," Moody's stated. "Medicare rates for inpatient services will rise, though cuts to laboratory and outpatient reimbursement and reduced Medicaid disproportionate share hospital (DSH) payments will constrain growth. Further, hospitals will continue to employ specialist physicians and make capital improvements in order to offer more profitable procedures, contributing to pricing growth."
Hospital utilization has been slightly declining over the years while expenses have been rising, according to AHA, so an increase in volume is desperately needed for many hospitals, especially those operating on thin margins.
In the face of industry uncertainty, many hospitals are tightening their belts, Igor Belokrinitsky, healthcare strategist at Strategy&, a member of the PwC network of firms, recently told Healthcare Dive. He mentioned many providers will likely stress zero cost increases among departments and could try to tinker with staffing or marketing costs to reduce some spending in the near term.
In the long term, it may take a bit more work to take out costs from the system. "The changes are becoming more dramatic. Fortunately, there's a bit of a cushion there because what's been happening over the years is a lot of these hospital systems have consolidated," Belokrinitsky said. Generally in a a hospital merger, the bought property still gets to get its board, staff, etc. "That's the reserve that's out there," he said. "That's the value that could be squeezed out of the system if you . . . really integrated these hospital systems so they function much more as a system as opposed to as a random collection of hospitals."
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