<0> Fitch: Medicare Sequestrations Cuts Manageable for Nonprofit Hospitals </0>
<0> Fitch RatingsAdam Kates, +1-312-368-3180DirectorFitch Ratings, Inc.70 W. Madison StreetChicago, IL 60602orEmily Wong, +1-212-908-0651Senior DirectororMedia RelationsElizabeth Fogerty, +1-212-908-0526 </0>
Link to Fitch Ratings' Report: Hospitals, Medicare,and Sequestration Cuts
The two percent sequestration cuts to Medicare are expected to be manageable given nonprofit hospitals' focus on operating efficiencies and resilience throughout the recent recession, according to a new Fitch Ratings report.
'Hospitals maintained or improved operating profitability and coverage metrics during the recession despite decreased utilization, Medicaid cuts in certain states, increased bad debt and charity care and other challenges,' said Adam Kates, Director in Fitch's Public Finance group.
'While the two percent sequestration cuts appear to be manageable, future deficit reduction initiatives could include deeper cuts to Medicare, which may be more challenging for hospitals to absorb.'
The estimated impact of the sequestration cuts is a 70 basis point reduction in operating profitability across Fitch's rated portfolio, with lower rated hospitals impacted to a greater degree due to their typically higher exposure to Medicare.
In Fitch's analysis, a one percent decrease in personnel costs mitigated the negative impact of the Medicare cuts from 70 bps to 20 bps across the portfolio, highlighting the ability of hospitals to offset the cuts through implementation of operating efficiencies, including cost management and revenue enhancement initiatives.
Fitch is not advocating staff reductions as staffing levels should be determined by clinical needs. Operating efficiencies could be achieved by a variety of cost reduction and revenue enhancement initiatives.
Ongoing federal deficit negotiations could result in additional cuts to Medicare reimbursement, which will likely be more challenging for hospitals to offset. The next level of operating efficiencies may need to be realized through clinical redesign and changes in the care delivery system, which will be more difficult to accomplish.
For more information, a special report titled 'Hospitals, Medicare and Sequestration Cuts' is available on the Fitch Ratings web site at .
Additional information is available at ''.
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