Moody's: Non-profit hospitals see constricted revenue growth

The Great Recession may be over and the Affordable Care Act (ACA) may be delivering millions of more patients, but hospitals are apparently still waiting for those bits of good fortune to make a difference to their bottom lines.

Revenue growth among non-profit hospitals is at its lowest levels since the Great Recession, according to a new report by Moody's Investors Service. Revenue grew only by 3.9 percent last year, according to the report. That's down sharply from the 5.1 percent revenue growth the hospitals saw in 2012, and far lower than the 7 percent growth it had seen in recent years, according to Moody's. Inpatient admissions were down 1.3 percent last year after several years of being flat. The growth rate for outpatient admissions also slowed.

"We expect revenue growth will remain under pressure in 2014," Moody's Analyst Jennifer Ewing said in a statement. "We expect continued financial weakening due to volume declines in a predominantly fee for service environment, reinforcing our negative outlook on business conditions for not-for-profit hospitals."

Among the factors that dampen revenue growth has been a shift to more outpatient visits, which pay at lower levels than inpatient admissions, exacerbated by close scrutiny of short-stay hospital stays, cuts in disproportionate share hospital payments, and the lingering effects of the sequester cut.

Since a large majority of non-profit facilities are community hospitals, they do not have the size or clout to negotiate favorable rates from commercial payers, the Wall Street Journal reported. Moody's noted that the typical rate increase for not-for-profits has been from flat to no more than 5 percent. That trend is compounded by more cost-shifting to health plan enrollees, creating an unsteady payment stream that hospitals must collect on their own.

Moody's had previously noted a tough operating environment for non-profit hospitals. In April, it reported that they have a difficult time controlling expenses. Last year, Moody's issued its sixth consecutive negative outlook for hospitals.

Although the growth of insured from Medicaid expansion and subsidized coverage from the ACA will likely be a mitigating factor for hospital finances, Moody's does not expect any significant effects to hit their bottom lines until at least 2015.

To learn more:
- read the Moody's report (subscription required)
- check out the Wall Street Journal article
- here's the Moody's statement

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