The outlook for the nonprofit hospital sector will remain negative and margins will continue to tighten as hospital expenses grow faster than their revenue, according to a report on the sector's 2014 outlook from Moody's Investors Service.
The pace of revenue growth will continue to decline. Specifically, Moody's expects median revenue growth to fall to a range of 3 to 3.5 percent in 2013 and remain low this year. The growth rate in fiscal 2012 was 5.2 percent.
Several factors are predicted to slow down revenue growth: an effective 1.3 percent Medicare payment reduction; reduction in disproportionate share payments (begun Oct. 1); continuing declines in inpatient volumes; and the ongoing shift in care to outpatient settings, where reimbursement levels are lower.
Moody's also expects commercial rate increases to be in the 0 to 5 percent range, far below their historical levels.
Expenses have been growing faster than revenues for the second year in a row. Big expenses include investments in information technology and in expanding physician practices, which generally operate at a loss but are seen as important for drawing referrals.
The Jan. 1 start of Affordable Care Act provisions that most directly impact hospitals present large unknowns because the insured population is growing unevenly.
Based on conversations with hospital executives across the country, Moody's estimates most insurance sold on the exchanges will reimburse hospitals at rates 20 to 30 percent lower than existing commercial rates, but at levels that are still above Medicare rates. Exchange-sold products still will be profitable, but will contribute to tighter margins.
For more, go to www.moodys.com.