Because health system operators reacted quickly to manage payment cuts and lower patient volumes, Moody’s Investors Service has upgraded its for-profit hospital outlook to positive from stable.
Since last year, when hospitals felt the sting of Medicare reimbursement, sequestration cuts and lower admissions, large hospital systems have modified their service mix or gotten out of unprofitable businesses or locations, making the earnings outlook brighter this year than last, a Moody’s report said.
Also adding to the positive outlook is the expectation that bad debt will decrease for many. Impacting bad debt levels will be the standing of hospitals with the insurance exchanges’ plan networks and the make-up of the population that obtains coverage and whether the hospital is located in a state that has expanded Medicaid or hasn’t.
Despite the positive outlook, ongoing challenges hang over the sector. Those challenges include slower increases in Medicare reimbursement rates, continued movement of inpatient services to outpatient classification and the ongoing uncertainty around the implementation of Medicare’s two-midnight’ rule. Hospitals also may be hit with increasing penalties as Medicare continues its program to reduce readmissions.
Uncertainty still surrounds the health insurance exchanges, including the number of enrollees who will sign up, whether they were previously insured and their utilization pattern, along with the effect of the explosion of high-deductible plans on healthcare consumption.
However, the completion of the acquisitions of Health Management Associates by Community Health Systems and Vanguard Health Systems by Tenet Healthcare should lower costs and improve operations in the sector.