Not-for-profit hospitals are facing more pressure to adapt to revenue upheaval in the coming years, with 2013 data once again showing expenses exceeding revenue growth, according to Moody’s.
Among not-for-profit hospitals in fiscal year 2013, median expenses grew faster than median revenue for the second year in a row, while both median operating margins and operating cash flow margins dropped, Moody’s analyst Jennifer Ewing and colleagues found in an audit of 203 hospitals’ financial statements.
The analysis, covering 45 percent of Moody’s rated portfolio of not-for-profit hospitals, is based on the fiscal year ending Sept. 30, 2013, and thus doesn’t account for impacts that might come with the Affordable Care Act’s coverage expansions, such as reimbursement for patients covered by new exchange plans or Medicaid, Ewing noted.
Annual expenses grew at a rate of 4.6 percent last year, half a percent more than revenue, which increased at a median rate of 4.1 percent, while median operating margins hit a three year low of 2.2 percent, and median operating cash flow margins fell to 9.3 percent, from 9.5 percent the previous two years.
Ewing and colleagues attribute the slow revenue growth and operating margin challenges to low rate increases from commercial payers and rate reductions from Medicare and Medicaid, in tandem with a payer mix that is generally shifting to more government payer reimbursement.
Among patient revenue sources at the 203 hospitals examined, a median of 44.3 percent came from Medicare (up from 44.1 percent in 2012), 12.9 percent came from Medicaid (two-tenths of a percent less than the year before), 32.1 percent came from commercial payers (down from 33.4 percent) and 7.6 percent came from self-pay, the same as in 2012.
Not-for-profit hospitals are also impacted by the increasing prevalence of high-deductible health plans that can at once slow demand and lead to bad debt, Ewing noted, along with outpatient visits and observation stays reimbursed at lower rates.
Despite the weak operating medians and revenue growth last year, though, debt coverage metrics were stable and balance sheet measures grew, thanks to strong equity markets.
And the median expense growth rate is slowing, Ewing noted, from a four-year high of 5.5 percent in 2012 to 4.6 percent last year. Cash-on-hand days are also improving, from a median of 185 in 2012 to 204 last year.
“The slowdown in expense growth comes in the midst of increasing costs for physician alignment and information technology, but demonstrates strategies and focus on cost control,” Ewing and colleagues wrote.
As they go through the rest of the not-for profit hospitals in Moody’s rating portfolio, the analysts expect final medians to “show weaker operating performance,” in part from hospitals in part of the country with struggling regional economies. But they also anticipate “general healthy balance sheet ratios.”