For sixth year, Moody's issues negative outlook for nonprofits

The outlook isn't good for nonprofit hospitals, according to Moody's Investors Service, which issued the negative report for the sixth consecutive year.

Revenue growth is also expected to decline, with the median revenue growth rate expected to drop to between 3 percent and 3.5 percent in fiscal year 2013, compared to 5.2 percent growth in fiscal 2012. Growth is expected to remain similarly low in 2012, according to the announcement.

The conditions are largely due to healthcare reform-related business shakeups, according to Moody's Assistant Vice President and Analyst Daniel Steingart, who wrote the report. "The sector as a whole will face weakening business conditions and contracting margins as not-for-profit hospitals adjust to changing dynamics brought on by the Affordable Care Act and insurance companies, employers and other industry participants seek to control healthcare costs," said Steingart.

Factors slowing down revenue growth include cuts to disproportionate share payments and an effective 1.3 percent cut in Medicare payments, the announcement states, as well as continually decreasing inpatient volumes and the trend toward outpatient settings, resulting in lower reimbursements.

Additionally, expenses have grown at a faster pace than revenues for the second consecutive year. It is difficult to determine exactly how insurance sold on the online exchanges will affect nonprofit hospitals, as the uninsured population is experiencing uneven growth, according to the announcement.

"There are many unknown variables that make budgeting and strategic planning especially difficult over the near term, including how many people will gain insurance coverage through the public exchanges or with what frequency they will access healthcare services," Steingart said.

Most insurance sold on the exchanges are estimated to reimburse hospitals at rates 20 to 30 percent lower than current commercial rates, according to Moody's, but at higher rates than Medicare.

Although Moody's issued a negative outlook for nonprofit hospitals this January, due to a combination of unemployment, slow economic growth and lower reimbursements, the report added that mergers and affiliations had helped nonprofits, FierceHealthFinance previously reported.

To learn more:
- here's the Moody's announcement