Healthcare Business News

Hospitals squeezed as revenue growth slows to all-time low

By Beth Kutscher
Posted: August 27, 2014 - 12:01 am ET

Revenue at not-for-profit hospitals grew at an all-time low of 3.9% last year with sluggish gains in both inpatient and outpatient activity, according to a report on 2013 medians from Moody's Investors Service.

In comparison, hospital revenue increased 5.1% in 2012 and historically has grown about 7% per year.

Moody's pegged the increased popularity of high-deductible health plans for leading people to postpone care or seek out lower cost retail clinics. “Patients have more skin in the game,” said Jennifer Ewing, an analyst at Moody's.

The volume decline also is coming amid a number of Medicare reimbursement cuts, including the ones known as sequestration triggered by the 2012 Budget Control Act and reductions in disproportionate-share hospital payments under the Patient Protection and Affordable Care Act. In addition, Medicare's two-midnight rule has made it harder for hospitals to bill short stays as inpatient care, and commercial payers have offered lower payment rate increases.

Meanwhile, hospitals continued to increase their investments in information technology and buying physician practices. As expenses grew faster than revenue for the second consecutive year, 25% of hospitals in the Moody's sample had an operating loss in 2013, up from 17.2% the previous year and 13.8% in 2011.

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But the 4.3% increase in expenses represented some moderation from the 5.5% increase in 2012. “This is the first year that we see expense growth but at a slower rate,” Ewing said, suggesting that hospitals and systems are working on cutting costs and realizing economies of scale.

For providers, tighter margins mean less capital to reinvest in their operations. “Our sense is that many hospitals are judiciously re-examining their capital spend,” said Lisa Goldstein, a Moody's analyst. When they do spend money, it's on information technology or acquisitions and less on their facilities as they fill fewer beds, she added. Year-to-date borrowing also has declined.

Through June 30, Moody's has downgraded 30 hospital credits, compared with 11 upgrades. That's a faster pace of downgrades than in the previous 12-month period, when they outpaced upgrades by a 2-1 margin.

Earlier this month, Standard & Poor's similarly found that health system margins had declined to 2.2% in 2013, the first time since 2008 that margins didn't increase. At stand-alone hospitals, margins declined to 2.1%, down from 2.6% in 2012.

A Modern Healthcare analysis of 179 health systems and hospitals found that 2013 margins tightened to 3.1%, down from 3.6% the previous year. A total of 61.3% of the organizations in the analysis, which included acute-care, post-acute care and rehabilitation hospitals, saw their margins shrink year over year.

Follow Beth Kutscher on Twitter: @MHbkutscher

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