Enrollment in the new insurance marketplaces may be picking up steam, but ratings agencies have little optimism that the expanded coverage will ease the pressure on not-for-profit hospitals.
Fitch Ratings revised its outlook for not-for-profit hospitals to negative for the first time since 2009. Moody's Investors Service last month affirmed a negative outlook on the not-for-profit healthcare sector for the sixth straight year.
James LeBuhn, who heads Fitch's not-for-profit healthcare group, said he expects to see more volatility in earnings results next year, as providers grapple with soft volumes, Medicare reimbursement cuts and performance penalties under the Patient Protection and Affordable Care Act.
The financial performance of hospitals and systems will depend largely on how quickly they can cut costs, flex staffing requirements and create clinical and operational efficiencies—requiring them to take a hard look at which services are offered.
Even if enrollment in exchange plans continues to gain traction—at 365,000 at the end of November, it's well behind estimates—Fitch is still “somewhat suspect” it will lead to greater profitability, LeBuhn said.
Moody's pointed out that more care is moving to outpatient settings, where reimbursement is lower. At the same time, systems are spending heavily on information technology and acquiring physician practices, though the payoff for those investments is uncertain.
“What all this boils down to is low revenue growth,” said Daniel Steingart, a Moody's analyst. Hospitals are expected to see revenue grow 3% to 3.5%, far below the 5.2% growth in 2012. “The thing to think about is that they're anticipating all these changes against a very challenging environment.”
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