Moody's confirms negative outlook for U.S. not-for-profit hospitals
New medians data available from FY 2010 illustrate current challenges faced by the U.S. not-for-profit healthcare sector and support the reasons for the sector's ongoing negative rating outlook, says Moody's Investors Service in a new report.
In the report, "U.S. Not-for-Profit Hospital Medians Show Resiliency Against Industry Headwinds But Challenges Still Support Negative Outlook," Moody’s says most U.S. not-for-profit hospitals struggled with weakening revenue growth in 2010 but still maintained stable financial performance and achieved somewhat improved balance sheet positions.
[Also: Moody's: Non-profits aren't losing any strength]
"Operating pressure in place when the outlook was changed to negative in October 2008 are fully captured in the underlying trends shown in the fiscal year 2010 medians – namely weaker revenue and volume growth trends," said Beth Wexler, Moody's vice president and senior credit officer and author of the mid-year outlook and medians report.
In a significant trend, median growth rate of net patient revenues and total operating revenues slowed to just 4.1 percent and 4.0 percent, respectively, with continued pressure expected in FY 2011. Median growth rate of inpatient admissions turned negative, -0.4 percent in FY 2010, following no growth in FY 2009.
Several outpatient indicators, such as emergency room visits, outpatient visits and outpatient surgeries, also showed declining growth rates.
"The declining median growth rates for these volume indicators are mostly due to the persistently sluggish economy as patients are deferring care," said Wexler. "A stubborn unemployment rate also translates into greater uncompensated care for hospitals."
Moody's recently revised its expectations downward for near-term economic growth and the rating agency also expects unemployment to remain above 8 percent through 2012.
Even though the 2010 median showed continued growth in government payments into the healthcare system, uncertainty about healthcare reform and expectations of inevitable Medicare cuts are on the horizon and support the negative outlook, according to the report.
"The federal deficit will further pressure hospital revenues, and we also expect lower rate increases from commercial payers as they face their own increased regulatory requirements under reform," said Wexler. "We also expect weaker revenue and volume trends to continue in FY 2011 and FY 2012, leading to a further downturn in the reported median data next year."
On the upside, Moody's reports that an intense focus on controlling operating spending led to improvement in key FY 2010 operating measures and improved debt coverage ratios. Total cash and investments as well as liquidity metrics also showed improvement due to stock market gains (now likely tempered), lower capital spending and moderately higher retained earnings.
