Moody’s Confirms Negative Outlook for Not-for-Profit Hospitals, Challenges Ahead

Moody’s Investors Service has confirmed its negative rating outlook for the not-for-profit healthcare sector thanks to new medians data from fiscal year 2010, which further illustrate the challenges facing the sector, says Moody’s in a new report.

Continuing high unemployment rates, uncertainty about healthcare reform, and upcoming Medicare cuts support Moody’s negative outlook, says the report, despite the 2010 median showing continued growth in government payments into the healthcare system.

“The federal deficit will further pressure hospital revenues, and we also expect lower rate increases from commercial payers as they face their own increased regulatory requirements under reform,” said Wexler. “We also expect weaker revenue and volume trends to continue in FY 2011 and FY 2012, leading to a further downturn in the reported median data next year.”


Although most not-for-profit hospitals experienced decreased revenue growth in 2010, the report shows they maintained stable financial performances and achieved “somewhat improved” balance sheet positions.

Moody’s pointed out a lagging median growth rate trend for both net patient revenues and total operating revenues, which slowed to 4.1% and 4.0%, respectively, and is expected to continue to experience pressure in fiscal year 2011.

Outpatient indicators, such as emergency room visits, outpatient visits, and outpatient surgeries, showed declining growth rates, as did the median growth rate of inpatient admissions, which declined 0.4% in FY 2010, following no growth in FY 2009.


“The declining median growth rates for these volume indicators are mostly due to the persistently sluggish economy as patients are deferring care,” said Wexler. “A stubborn unemployment rate also translates into greater uncompensated care for hospitals.”

On a more positive note, the report mentions an improvement in FY 2010 operating measures and debt coverage ratios thanks to an “intense focus” on controlling operating spending.

“Total cash and investments as well as liquidity metrics also showed improvement due to stock market gains (now likely tempered), lower capital spending, and moderately higher retained earnings,” says the report.

The report, “U.S. Not-for-Profit Hospital Medians Show Resiliency Against Industry Headwinds But Challenges Still Support Negative Outlook,” can be viewed here.

Written by Alyssa Gerace