Moody's: Hospital cash flow growth still at low ebb

Hospital operating cash flow growth was hit hard by the Great Recession, and a new report by Moody's Investors Service does not expect it to improve anytime soon.

Moody's projects cash flow growth for not-for-profit hospitals for the next 18 months to range from negative 0.5 percent to up to 1.5 percent. That's a stark contrast from five years ago, when cash flow growth forecasts topped out at 7 percent.

The news is even grimmer for smaller facilities. "We expect that operating cash flow will decline even more for smaller hospitals, while the largest systems will grow cash flow at a stronger rate," Moody's said in its report, later adding that "the largest hospital systems with revenue above $2 billion will likely achieve growth of 3 percent to 4 percent, while most hospitals with revenue under $1 billion will likely generate negative operating cash flow growth. Meanwhile, growth at the smallest hospitals (those with less than $500 million in annual revenue) will decline 2 percent or more."

The ratings agency noted that to date, the implementation of the Affordable Care Act has had at best an uneven impact on hospitals. The ones that benefit the most are located in states that expanded Medicaid eligibility--about half the states overall.

Despite the negative outlook, Moody's does project that aggregate cash flow for the entire hospital sector will grow slightly, and "as a result, the industry should settle into a period of very low, but stable growth that ultimately could lead us to change our outlook to stable," it said.

The ratings agency kept its pessimistic view about improving operating margins, noting that most superfluous expenses have been squeezed out. It also noted that revenue growth will be slow, at a steady 3.5 percent to 4.5 percent annual growth, and that contractions are mostly a thing of the past.

Moody's had previously sounded warnings about hospital revenue growth and expenses.

To learn more:
– read the Moody's report (.pdf, registration may be required)