Children's hospital operating margins improved in 2008, though stress on safety net insurance from troubled state and household budgets threatens to weaken performance in coming years, Moody's Investors Service said in a report on the sector.
Operating margins improve for children's hospitals in 2008, Moody's says
The median operating margin for among the 21 children’s hospitals reviewed by the rating’s agency’s analysts was 5.2% for the fiscal 2008, up from 4.8% the prior year. Such performance is striking, compared with the sliding 2008 medians for 407 not-for-profit hospitals and health systems reported by Moody’s in August, which found operating margins dipped to 1.5% last year from 2.1% the prior year.
However, children’s hospitals did not escape steep liquidity declines that have eroded balance sheet strength across the industry. The median number of days children’s hospitals could operate using cash reserves fell to roughly 232 days from 271 days, or 16.8%. Slightly more than 40% of children’s hospitals in the report had fiscal years that ended Dec. 31; the rest were split between September or either June or August.
Growing volume and limited competition contributed to strong revenue growth among children’s hospitals, though capital projects to meet demand could be more expensive thanks to a weak economy and tight credit markets, the report said. Meanwhile, analysts described the threat to Medicaid payments from struggling states, which jointly finance the safety net insurers with the federal government, as “the greatest risk” to children’s hospitals’ credit strength.
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