Moody's sees providers facing risk of payment cuts, tighter scrutiny

Hospice programs, specialty hospitals, home health, and oxygen and durable medical equipment are sectors that could be at risk for increased scrutiny and reimbursement cuts from the government, according to a new report from Moody's Investors Service (PDF). That's because sectors that have low barriers to entry and are more vulnerable to waste and abuse, as well as those segments that receive higher payments to other provider types, or segments that grow rapidly are likely targets for federal cuts from the government.

With the Medicare program paying more than $300 billion to U.S. healthcare providers each year—and with about 70% of rated U.S. corporate healthcare providers relying on Medicare and Medicaid for more than one-third of their total revenue—payment reductions could “severely impair the financial performance and credit ratings” of these providers, according to the report.

The report also included sector-by-sector comparisons and noted that Medicare payments to general hospitals will decline by 0.4%, or $440 million, in 2011 compared with 2010; aggregate payments to long-term, acute-care hospitals will increase by 0.5%, or $22 million, in fiscal 2011; and Medicare payment rates for next year will increase 1.7%, or about $542 million. All figures are based on estimates from the CMS, the report noted.

“Reimbursement pressures could also trigger accelerated industry consolidation as companies seek scale, operating efficiency and diversification,” the report said. “Providers, particularly those in the higher-risk sectors, must maintain capital structures that will allow them to withstand what could be significant cuts to their revenue streams.