Future downgrades are expected for not-for-profit hospitals, which already have a negative outlook from Moody’s Investors Service. The sector is experiencing the lowest rates of revenue growth in the last 20 years, says a new report from the ratings agency.
“Hospital rating downgrades will likely increase in the short term unless expense reductions and productivity gains compensate for stagnant or weak revenue growth,” says Lisa Goldstein, the author of the report, titled Hospital Revenues in Critical Condition; Downgrades May Follow. “While better-managed hospitals can stave off rating downgrades, smaller hospitals are coming under particular stress.”
The sector is facing reimbursement pressures from all major payers, says Moody’s, including an upcoming 11.1% reduction in Medicare reimbursement rates, which will go into effect on October 1.
“Continued rate reductions for Medicare are inevitable as Washington seeks to reduce the deficit and reign in the program’s costs,” says Goldstein. “This is critical as Medicare comprises nearly half—43%—of hospital gross revenues.”
Not only is the sector facing hospital rate reductions, but Medicare cuts are also a possibility for the physician rate, which will deal hospital revenues an added blow. Further, hospitals are dealing with a transition away from fee-for-service care to bundled payment arrangements, and having two different payment models may also disrupt revenue, says the ratings agency.
Written by Alyssa Gerace