Moody's relents on negative forecast for non-profit hospitals

At last, there is some financial light at the end of the tunnel for non-profit and public hospitals.

For the first time in years, Moody's Investors Service has changed its long-range forecast from negative to stable. It had hinted earlier this summer that it was leaning toward making that change. Moody's has issued a negative forecast for the non-profit/public hospital sector since 2008, when the Great Recession began to take hold.

The ratings agency noted that cash flow for many hospitals in that sector had increased, helping to improve their outlook. Altogether, operating cash flow growth jumped to a robust 12.3 percent of revenue last year, compared to 0.3 percent in 2013. It remained relatively strong at 11.5 percent through the first quarter of this year, which Moody's said was due in part to many years of disciplined control over expenses.

"The outlook revision represents significant gains in the number of people with insurance, growing patient volumes and sizeable reductions in bad debt that are contributing to very strong growth in operating cash flow," the report said. "The stable outlook expresses our view that fundamental business, financial and economic conditions for the not-for-profit and public healthcare sector will neither erode significantly nor improve materially over the next 12 to 18 months."

The report also noted that inpatient volumes at hospitals rose about 3 percent during the first quarter of this year, noting that a rising number of insured, an improved economy and pent-up demand for care were among the drivers.

However, Moody's still expressed caution in several areas. The upward curve for revenue growth does not match that of cash flow, and Moody's also expects gains in cash flow to decline over the next 18 months or so.

"The not-for-profit and public healthcare industry faces long-term challenges stemming from who pays for care, how providers are reimbursed and changes in patient behavior. These challenges may weigh on profitability and growth," the report said.

To learn more:
- read the Moody's report (registration required)