Operating performance and liquidity of not-for-profit hospitals remained stable in 2007, but industry pressures first seen two years ago are expected to continue given the nations weaker economy, according to a Moodys Investors Service report on not-for-profit healthcare medians.
The medians are based on an analysis of audited fiscal 2007 financial statements for 410 free-standing hospitals and single-state healthcare systems and 16 multistate healthcare systems. These represent 94% of Moodys publicly rated portfolio that are eligible to be included in the medians.
Fiscal 2007 was the second consecutive year in which the median expense growth rate exceeded the median revenue growth rate, even though the median annual expense rate fell to 7.4% in 2007 from 7.8% in 2006, according to the report. Also, hospital operating margins softened last year, although the 49-page report said those margins remain sound compared with historical levels. The median operating margin dropped to 2.1% in 2007 from 2.3% in 2006, and the median operating cash flow margin declined to 9% from 9.2% in the same period. However, the median capital spending ratioadditions to property, plant and equipment divided by depreciation expenseincreased 1.52 times, up from 1.45 times in fiscal 2006.
Seventy-seven percent of Moodys-rated not-for-profit hospitals and health systems reported operating profits in FY 2007, a relatively high number for an industry with multiple challenges and consistent with FY 2006 levels, the report noted. While the percentage of not-for-profit hospitals recording an operating profit for FY 2007 was down from the peak of 81% in FY 2005, the 77% is still considerably better than the 69% achieved in FY 2003. -- by Jessica Zigmond