Children's hospitals financially outperform acute care hospitals

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Standalone not-for-profit children's hospitals are outperforming nonprofit acute care hospitals financially, according to a new Fitch Ratings report.
 
Total revenue at standalone children's hospitals has grown annually "with solid operating margins, despite the high percentage of exposure to Medicaid reimbursement," Fitch said in an announcement. The hospitals financial strength positions them well to manage healthcare reform.
 
The hospitals are highly liquid and are spending on capital improvements with "moderating" debt burden, according to the announcement. Last year the median children's hospital had 12.8 percent operating earnings (before taxes, depreciation and amortization), compared with 9.4 percent for general acute-care hospitals. Children's hospitals also had significantly more cash on hand than acute-care hospitals.
 
"Standalone children's hospitals have an advantage over other general acute care providers given their market position in highly specialized services," Fitch said. Some also have "begun to enter risk-based contracts for a portion of its Medicaid population by accepting capitated payments," according to the report.
 
In January Moody's Investor Service issued a negative outlook overall for U.S. not-for-profit hospitals, projecting a diminishing rate of revenue growth because of federal cuts to medical reimbursements and insurers limiting reimbursement increases.
 
"Our sector outlook has been negative since 2008, reflecting the lasting impact of the recession on patient volumes, significant challenges facing the industry resulting from changes in how hospitals are paid, and heightened pressure from businesses and all levels of government to lower the cost of healthcare services," Moody's analyst Daniel Steingart, lead report author, said in a January announcement.
 
At the same time, overall nonprofit hospital performance was mostly favorable, Moody's said, with hospitals maintaining operating margins credited largely to good financial-management practices. Mergers, affiliations and other market collaborations also can improve market performance over time, Moody's said.
 
For more:
-read the Fitch announcement
-check out the report (subscription required)
-here's the Moody's announcement