For-profit hospital finances look stable, profit margins should improve, Moody's says
Report says margins are improving, especially when systems shed less-profitable facilities.
The outlook for the U.S. for-profit hospital industry remains stable, according a recent Moody's Investors Service report. Earnings are expected to grow in the low-single digits over the next 12 to 18 months, while volume and pricing trends will continue to be modestly positive. Profit margins are expected to stabilize after a significant drop between 2015 and 2016.
The stable outlook is driven by positive revenue growth and flat margins, said Moody's. Aggregate earnings before interest, tax, depreciation and amortization are projected to grow by 2.5 to 3.5 percent over the next year or so, with margins holding steady.
While the industry is experiencing challenges -- such as higher wage and benefits expenses stemming from nursing shortages and increased physician employment -- actions undertaken by individual facilities will keep the financial picture steady, said Moody's.
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Margins will also improve as hospitals integrate their acquisitions and dump less profitable facilities, according to the group.
Moody's expects patient volumes to increase 1 to 2 percent over the next 12 to 18 months, with declining unemployment and an aging population among the trends that will continue to spur demand for healthcare. However, structural shifts in payer programs, which aim to reduce utilization and the cost of care by shifting patients to lower-cost settings, will offset these positive trends.
Higher private insurance rates will be the main driver of revenue growth over Moody's outlook period. Medicare rates for inpatient services will rise, though cuts to laboratory and outpatient reimbursement, and reduced Medicaid disproportionate share hospital payments, will constrain growth. And hospitals will continue to employ specialist physicians and make capital improvements in order to offer more profitable procedures, contributing to pricing growth, Moody's said.
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