Moody's: Not-for-profits balance sheets improve, for-profits have not

Not-for-profit hospitals will likely fare a little bit better financially in the coming years than their for-profit counterparts, according to a new report issued by Moody's Investors Service.

Moody's noted in its report that operating cash flow growth has returned to normal pre-recession levels, leading to improvements in debt leverage. "Recent market volatility notwithstanding, balance sheets are, on average, stronger than they were three years ago owing to good cash flow growth and previously strong investment performance," the report said, attributing that in part to the growth of insured patients under the Affordable Care Act.

Stronger balance sheets are important, according to the report, because hospitals rely on financial reserves to invest in low margin growth businesses, including health insurance plans and clinically integrated networks. Furthermore, the report said, some larger not-for-profit hospital systems have increased efficiency in anticipation of potential future reimbursement pressure.

It was less than a year ago that Moody's dropped its negative forecast for non-profit hospitals, after years of pessimistic projections.

The same could not be said regarding for-profit hospitals and systems. Moody's noted that debt leverage has not improved over the past three years, mostly as the result of organizations taking on more loans to finance mergers and acquisitions. It attributed this primarily to two big deals: Tenet Healthcare Corp.'s acquisition of Vanguard Health Systems and Community Health System's acquisition of Health Management Associates.

Since closing the $1.3 billion acquisition of Vanguard, Tenet has made some other deals, but they have been smaller in scope. It scrapped a deal to acquire five hospitals in Connecticut last year after running into regulatory roadblocks.

To learn more:
- read the Healthcare Quarterly report (.pdf, subscription required)

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