Moody's: For-profit hospitals' prospects on rise

In recent years rating agencies projected negative outlooks for hospitals due to the lingering fallout from the Great Recession and the large number of uninsured patients treated at hospitals. But looks like that is about to change, at least in regards to for-profit hospitlas.

Moody's Investor's Service recently announced the for-profit hospital outlook is now positiive. The reason? The rising number of insured due to the Affordable Care Act will bolster for-profits' bottom lines to some extent, Moody's said in a new report.

"For-profit hospitals will benefit from a reduction in bad debt expense as the uninsured population declines under the Affordable Care Act," Moody's Senior Vice President Dean Diaz said in the statement. "The impact will vary among institutions based on factors including their location, since only 26 states and the District of Columbia have expanded their Medicaid programs under the act."

In addition to the encouraging outlook for for-profits, Moody's last month also said that academic medical centers were in a strong financial position, citing their size relative to other hospitals and their overall market position.

However, the ratings agency remains pessimistic about not-for-profit hospitals because of disproportionate share payment cuts and the fact that expenses outpace revenues.

Although some for-profit operators reported relatively weak numbers for 2013, Moody's noted, they have made operational adjustments to compensate for lower patient volumes and a 2 percent cut to Medicare reimbursements as part of the sequester.

Moreover, continuing mergers and acquisitions among for-profit hospital chains could also go a long way toward reducing operating expenses. Moody's cited in particular Community Health Systems Inc.'s purchase of Health Management Associates and Tenet Healthcare Corp.'s purchase of Vanguard Health Systems.

And some headwinds also remain, including the erosion of inpatient volumes, uncertainty regarding the outcome of the two-midnight rule on observation care patients and slower growth in Medicare payments.

To learn more:
- read the Moody's Investors Service statement
- read the report (subscription required)

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