Pressure mounts on not-for-profit standalones, systems

Small, standalone not-for-profit hospitals and even some larger systems have their backs against the wall due to mounting financial pressures, according to Standard & Poor's Rating Services.

Standalones battle financial issues on several fronts, including rising bad debt, the departure of physicians for greener pastures and higher costs for employee benefits, Reuters reported. S&P noted last year that pension benefits have become a substantial long-term burden to hospitals. Smaller facilities are often dependent on a small cadre of physicians, who are always at risk of being lured away by competitors or simply deciding to retire.

"We believe the sector is at a tipping point where negative forces have started to outweigh many providers' ability to implement sufficient countermeasures," said S&P credit analyst Margaret McNamara in the announcement.

The report issued Wednesday by S&P noted that median ratios for both not-for-profit standalones and healthcare systems showed a decline in operating performance last year as patient volumes fell and expenses overcame any revenue gains.

"We expect continued compression in operating margins in 2014 due mainly to inpatient volume decline, although special funding mechanisms may mask further declining operating results," said Standard & Poor's credit analyst Jennifer Soule. "We also anticipate non-operating revenues, specifically investment earnings, could continue to reflect growth, given that year-to-date investment market performance has been overall sound."

The ratings service has been pessimistic about future hospital growth since earlier this year, after what Managing Director Martin Arrick said was a "stubbornly stable" positive view.

Arrick told Reuters that to date, hospitals have done a fairly good job of fighting the headwinds, but that they are running out of strong responses. "Hospitals have done a pretty good job cutting costs to deal with declining revenues. But in the last year with the additional pressure of volume declines, it's been the straw that is breaking the camel's back," Arrick said.

To learn more:
- read the Reuters article
- here's the S&P announcement (registration required)

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