Healthcare Business News

Outlook remains negative for not-for-profit hospitals: Moody's

By Melanie Evans
Posted: January 22, 2013 - 5:30 pm ET

Hospitals will see lower insurer payments for services in coming years as Medicare slashes slashes $300 billion from hospital reimbursement and commercial insurers respond to public pressure to curb premium growth, Moody's says.

Moody's Investors Service, in an outlook for not-for-profit hospitals, said scheduled Medicare cuts, likely federal deficit-reduction measures, continued state budget distress and pressure to slow private insurance premiums will reduce the amounts hospitals are paid.

In the next six years, Medicare is expected to squeeze $243.5 billion from its yearly payment updates and shave another $54.2 billion from payments to hospitals with a disproportionate number of low-income patients. Penalties for patients who return to the hospital within 30 days and with hospital-acquired infections will reduce Medicare hospital spending by another $11.4 billion. Moody's analysts, who maintained a negative outlook for not-for-profit hospitals, called the cuts the sector's “greatest challenge.” The potential for more hospital cuts under a deficit reduction deal is the sector's “biggest uncertainty,” Moody's said.

Hospitals that enter into new payment models and those that diversify with deals for physician groups, nursing homes, insurance companies or other deals also face heightened financial risks, Moody's said. Daniel Steingart, an assistant vice president and analyst with Moody's who co-authored the report, said hospitals that enter into new payment contracts that tie profits or losses to an overall, or global, budget for patient care could be at risk for losses if patients are sicker and more costly than projected. And hospitals looking to diversify to better control the cost of patients' care could pay too much or make unnecessary acquisitions, he said.

“There is also the risk that hospitals will get too far ahead of the new reimbursement methodologies, ultimately acquiring assets they don't need as management teams overreact to competitive pressure and engage in empire buildings across the continuum of care,” the Moody's report said.

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