Non-profit hospitals improve margins--for now

Moody's Investors Service praised not-for-profit hospital operators for taking tough measures to improve their 2009 margins, but determined such a performance will be short-lived.

According to a Moody's survey of 401 non-for-profit hospitals released last week, median operating margins improved to 2.3 percent in 2009, versus 1.8 percent in 2008 and 2.1 percent in 2007. Meanwhile, the growth in salaries and benefits was slowed to 5.6 percent in 2009, compared to 8.2 percent in 2008.

Overall, 63 percent of hospitals reported improvement in their operating performance in 2009, compared to just 45 percent in 2008--one of the lowest figures in years.

"In reaction to the widespread financial crisis and deep recession, many management teams deftly executed cost control strategies to stabilize and improve financial performance despite flat volume trends and slower revenue growth," concluded the report, which was authored by Moody's Senior Credit Officer Kay Sifferman.

However, the report noted that although liquidity among not-for-profit operators grew 10.4 percent in 2009, it remains lower than its 2005 peak. Moreover, pending cuts in Medicare reimbursement that go into effect in October will put more pressure on hospital operations in the years to come, as is the continued trend toward growth in less-costly outpatient vs. inpatient treatment.

"Moody's negative outlook on the not-for-profit hospital sector predicts weaker financial performance ahead due to a sluggish economic recovery, growing levels of uncompensated care, and flat volume trends," according to the report.

To learn more:
-  read this Business Week article