Moody’s: Nonprofit hospital revenue growth likely to shrink

The outlook for nonprofit hospitals in the U.S. in 2013 continues to be negative, according to Moody's Investors Service. Although revenue growth will remain positive, Moody reported that it expects the rate of this growth to diminish.

Negative pressures on growth include federal cuts to medical spending and limited reimbursement increases from insurers. In addition, tepid economic growth and possible elevated unemployment will dampen demand for healthcare, Moody’s stated in its report, “U.S. Not-for-Profit Healthcare Outlook Remains Negative for 2013.”

Daniel Steingart, Moody's assistant vice president-analyst and lead author of the report, noted that Moody’s outlook for the sector has been negative since 2008. He listed the impact of the recession on patient volumes, changes in how hospitals are paid and heightened pressure from businesses and government to lower the cost of healthcare services as contributing factors.

The hospital industry faces more than $300 billion in reductions to Medicare payments through 2019 as part of healthcare reform, according to Moody's, which anticipates additional Medicare cuts to hospitals through legislation intended to reduce the long-term federal deficit.

Some positive developments have softened the impact of the negative trends in healthcare. Most important has been that hospital performance has remained mostly favorable.

"Operating margins and leverage metrics have not deteriorated in recent years, despite negative headwinds, because management teams have successfully managed expenses in light of weak patient volumes and less robust revenue growth," Steingart said in a release.

Other positive trends include the strategic decisions hospital boards and management teams have taken to engage in mergers, affiliations and other forms of collaboration with various market participants. These have often improved operating performance over time.

The negative outlook expresses Moody's expectation for the fundamental credit conditions in the industry over the next 12 to 18 months.