The three major hospital credit agencies are predicting a negative financial outlook for not-for-profit hospitals in 2015, as rising costs and weaker reimbursement will continue to affect operating margins.
Moody's Investor Services reports that the financial outlook for the not-for-profit healthcare industry will remain weak for the next 12 to 18 months. They are anticipating that not-for-profits will see weak revenue growth related to investments that hospitals are making in an effort to comply with the Affordable Care Act (ACA) and new reimbursement models.
According to Moody, median operating cash flow growth will range from -0.5% to 1.5%, with larger systems growing at a stronger rate than smaller hospitals. Operating margins will also weaken, and revenue growth will remain below 4%, which is around the same as in previous years, but still well below the 6% to 8% growth that hospitals were seeing prior to 2009.
Moody also anticipates that the impact the ACA has on hospitals will vary by state. "To date, the ACA has had only a modest impact on our rated portfolio, due in large part to uneven implementation across the country," they say in their report. "Hospitals in the states that expanded Medicaid eligibility and aggressively enrolled individuals for healthcare insurance in 2014 will see the greatest benefit."
Other agencies' opinions
Standard & Poor is predicting that for the third consecutive year, not-for-profit providers will see more downgrades than upgrades. They note several factors that contributed to their negative forecast, including top-line revenue constraints, soft demand, movement toward value-based payment structures, continued reform readiness activities and the high cost of electronic medical records implementation and maintenance.
Fitch Ratings says not-for-profits can expect more uncertainty as the debate over different aspects of the ACA and the movement toward value-based reimbursement models continue. Fitch predicts that some of the key drivers that affected profitability in 2013 and 2014 (the continued proliferation of high deductible health plans, reduced readmission rates and Medicare's "two midnight rule") will continue to challenge not-for-profit hospitals in 2015. However, Fitch expects the impact on inpatient volumes to be less pronounced this year. Additionally, Fitch believes that states choosing to participate in Medicaid expansion will help to diminish reimbursement pressures from Medicare and commercial payers.
Better Outlook for For-Profits
In the meantime, Modern Healthcare reports that for-profits will have a strong year due to cost-cutting efforts and the adoption of new initiatives designed to draw more patients. The ACA is also having a more positive impact on for-profit hospital systems, which are benefiting from an increase in patient volumes and a better payer mix.
Megan Neuburger, an analyst at Fitch Ratings who covers the for-profit sector, told Modern Healthcare that over the past year, management teams at investor-owned chains kept a tight rein on expenses and were conservative with how they managed capital. She also said that the for-profits had a tendency to make smaller investments and refinance higher-interest debt instead of pursuing blockbuster mergers, which had a positive effect on their credit ratings.