New York, November 16, 2010 -- While not-for-profit hospitals in New Jersey avoided major cuts in state funding earlier this year, their ability to avoid future budget cuts is uncertain, says Moody's Investors Service in a new report that predicts more hospital downgrades than upgrades over the next 12 to 18 months.
"The state's fiscal year 2011 budget created a small period of funding stability but the level of state support beyond June 30 is uncertain," said Moody's Analyst Sarah A. Vennekotter, author of the report, which outlines the pressures and challenges facing the industry, including the additional hurdles associated with federal healthcare reform.
"New Jersey hospitals that enact sustainable expense reduction measures to improve operating performance will likely be less impaired by ongoing operating and reimbursement pressures," said Vennekotter. "We also anticipate more closures, payment defaults, or bankruptcy filings over the next couple of years by hospitals that cannot manage expenses and invest in long-term strategies."
Moody's rating outlook for New Jersey not-for-profit hospitals and healthcare systems is negative, just as it is for the sector nationally. The dominant factors driving the rating agency's negative outlook for New Jersey hospitals include weak financial performance compared to the rest of the country, below-average levels of liquidity, very competitive and fragmented local markets, and challenges in negotiating favorable reimbursement from commercial insurers. .
"The 'Great Recession' and New Jersey's weakened economy will result in continued pressures on not-for-profit hospitals," said Vennekotter. "Even greater rounds of expense cuts will be needed to stabilize financial performance, which is already required due to lackluster or declining patient volumes and reduced commercial and governmental reimbursement.
Over the past year, Moody's has downgraded the ratings for two New Jersey providers, upgraded one hospital's rating, and affirmed 15 ratings. Three of the affirmations included favorable outlook revisions to stable from negative. The current median hospital rating in New Jersey is Baa2, two notches below the national average of A3.
The report, "New Jersey Hospitals Dodge Budget Bullet but Still Face Serious Financial Pressures," is available at moodys.com.