Moody's sees rough 2015 for nonprofit healthcare
Lacking economy of scale, smaller hospitals likely to struggle with new reimbursement models.
Moody's predicted cash flow to weaken, revenue growth to be limited and operating margins to narrow over the next 12 to 18 months.
Credit ratings agency Moody’s Investors Service issued a negative outlook on U.S. nonprofit hospitals in 2015, as smaller hospitals continue to weaken amid changes to the industry.
Moody’s predicted cash flow to weaken, revenue growth to be limited and operating margins to narrow over the next 12 to 18 months.
"The largest hospitals have long generated stronger operating margins and revenue growth owing to factors such as their economies of scale and ability to drive revenue growth through expanded services,” said Moody’s Senior Analyst Daniel Steingart.
Without access to economies of scale, Moody’s expects operating cash flow to range from -0.5 percent to 1.5 percent among smaller nonprofits. On the other hand, larger nonprofit hospitals with more than $2 billion in revenue are expected to grow by 3 to 4 percent.
[See also: Moody's: Health exchanges a credit risk for most U.S. hospitals.]
Nonprofits continue to struggle with new reimbursement models coming from the Affordable Care Act. While many are still tied to fee-for-service models, the growth in value-based reimbursements tied to preventative care presents challenges for organizations with smaller margins.
Moody’s also said the financial impact of ACA-backed models varies between states that chose to expand Medicare, and those that did not.
Bad debt has fallen in expansion states by 5.6 percent, while states that have not expanded Medicare saw bad debt rise nearly 7 percent.
