S&P: Long-term not-for-profit hospital forecast leaning negative

The nation's hospitals have been tremendously flexible in adjusting to how the Great Recession roiled their finances, but they are still facing long-term declines in patient volume and other challenges to their bottom lines, said Martin Arrick, managing director of rating agency Standard & Poor's (S&P) not-for-profit healthcare group, who spoke at the Healthcare Financial Management Association's annual meeting in Las Vegas earlier this week.

"The sector itself has done a really phenomenal job on keeping up with the changes since the recession," Arrick said, but not enough to keep S&P from recently issuing a negative outlook for not-for-profit hospitals after years of providing a "stubbornly stable" positive view.

The factors that have sent hospitals to the negative tipping point include growing pressure on the bottom lines of hospitals that included weakened revenue streams, tremendous competition for patients; rising pressure to commit more capital to infrastructure improvements; and an overall decline in business from commercial payers.

As a result, even the most financially robust hospitals and healthcare systems will have a hard time doing better than maintaining the status quo for margins and reserve levels, while those in a weaker position will see erosion to their operating margins and their cash flow.

Although the Affordable Care Act (ACA) has led to more insured and a temporary bump in volume, Arrick believes the bigger long-term trend is the declining patient use rate of hospitals.

"We held back on downgrades because ongoing operations were strong," but S&P will likely be issuing more downgrades in the near future, he said.

Arrick also predicted that the ACA's future may not be as secure as generally believed, particularly if the White House and both houses of Congress come under Republican control in 2016. But absent a plan to replace the ACA, Arrick said an outright repeal is unlikely. Meanwhile, Arrick said S&P's plan to revise its ratings criteria for hospitals is continuing, and that it has taken more than 200 comments submitted by hospital operators under consideration.

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