Even though 2 percent reductions are scheduled to hit Medicare payments due to sequestration cuts beginning on April 1, a recent Standard & Poor's (S&P) report said the futures outlook for for-profit hospitals is stable.
S&P's analysis takes into account the effect of both realized and prospective reimbursement changes for all payers, including Medicare, Medicaid and private insurance companies, said David Peknay, an S&P credit analyst.
[See also: Sequester signals trouble ahead]
"One of the key factors we consider in our analysis is reimbursement risk," said Peknay. "We are always very conscious of ongoing reimbursement challenges and risks hospitals have incurred, as well as other cuts and variations in reimbursement changes every year."
Peknay added that S&P recognizes that healthcare companies very actively manage their operations to lessen the effects of reimbursement cuts. Many companies have been seeking new business opportunities to enhance revenue and for ways to reduce costs, he said.
"Putting it in perspective, many hospitals typically generate between anywhere between 25 to 40 percent of their revenue from Medicare. Two percent in the scheme of things is relatively small. The absolute dollars cut from hospitals could be significant, but many hospitals have been planning for these changes in anticipation of the [Affordable Care Act] and have implemented various operating strategies in order to cost control everything going into play," said Peknay. "Therefore, while it's difficult because no one likes to see a cut, hospitals have been taking the appropriate actions in order to be ready."
Moody's is also predicting a stable outlook for U.S. for-profit hospitals. In a recent report, the rating agency said expectations are for modest earnings growth over the next 12 to 18 months with the caveat that the sequestration cuts to Medicare spending will remain a wild card.
[See also: Moody's confirms negative outlook for U.S. not-for-profit hospitals]
According to the Moody's report, if the 2 percent sequestration cuts become effective, EBITDA for those hospitals will likely fall this year. If Congress ends up reversing the cuts, "it could take a broader approach to cutting spending that would take time to implement, delaying reductions in Medicare payments to hospitals and relieving pressure on EBITDA during the outlook horizon."
[See also: Medicare cuts looming]