Skip to main content
Subscribe
  • Sign Up Free
  • Login
  • Subscribe
  • News
    • Current News
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • Digital Health
    • Transformation
    • ESG
    • People
    • Regional News
    • Digital Edition (Web Version)
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Midwest
    • Northeast
    • South
    • West
  • Opinion
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
  • Events & Awards
    • Awards
    • Conferences
    • Galas
    • Virtual Briefings
    • Webinars
    • Nominate/Eligibility
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Excellence in Governance
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top Innovators
    • Diversity in Healthcare
      • - Luminaries
      • - Top 25 Diversity Leaders
      • - Leaders to Watch
    • Women in Healthcare
      • - Luminaries
      • - Top 25 Women Leaders
      • - Women to Watch
    • Digital Health Transformation Summit
    • ESG: The Implementation Imperative Summit
    • Leadership Symposium
    • Social Determinants of Health Symposium
    • Women Leaders in Healthcare Conference
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Diversity Leaders Gala
    • Top 25 Women Leaders Gala
    • - Hospital of the Future
    • - Value Based Care
    • - Hospital at Home
    • - Workplace of the Future
    • - Digital Health
    • - Future of Staffing
    • - Hospital of the Future (Fall)
  • Multimedia
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Video Series - The Check Up
    • Sponsored Video Series - One on One
  • Data Center
    • Data Center Home
    • Hospital Financials
    • Staffing & Compensation
    • Quality & Safety
    • Mergers & Acquisitions
    • Data Archive
    • Resource Guide: By the Numbers
    • Surveys
    • Data Points
  • Newsletters
  • MORE+
    • Contact Us
    • Advertise
    • Media Kit
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Finance
June 24, 2014 01:00 AM

Credit agencies warn of troubled financial outlook for hospitals

Rachel Landen
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Arrick

    Some hospital balance sheets are rebounding to pre-recession levels but declining revenue and shrinking margins are causing credit rating agencies to look askance at the sector, according to industry experts.

    “We're seeing margins coming down as the ability to cut costs is eclipsed by revenue pressures,” said Martin Arrick, managing director of Standard & Poor's ratings services, during a Tuesday session at the Healthcare Financial Management Association's 2014 Annual National Institute in Las Vegas.

    After assigning the healthcare sector a stable outlook for what Arrick called “quite a long time,” Standard & Poor's announced in December 2013 that accelerating negative pressures at not-for-profit hospitals and health systems had led the ratings service to a negative outlook for the industry.

    And Tuesday morning, Arrick echoed the view that the not-for-profit hospital sector is at a negative tipping point. It's an opinion that is not at all uncommon among ratings agencies.

    Fitch Ratings has lowered its 2014 outlook for the not-for-profit healthcare sector to negative, and Moody's Investors Service affirmed a negative outlook for the sixth year in a row. The agencies blame shrinking patient volumes, slowed revenue growth and escalating expenses.

    “The sector has done a phenomenal job keeping up with changes since the recession,” Arrick said. “CFOs have been on a journey to cut costs, lower capital spending and meet the challenges of lower revenue. But we noticed last year that a lot of organizations are beginning to lose that battle.”

    One of the battles is against tightening revenue streams from an army of different factors. Pressures on revenue include a 1.3% cut to Medicare rates, a reduction in disproportionate-share payments that became effective Oct. 1 last year, and flat or declining inpatient volumes.

    Significant changes, including the emphasis on population health management and a shift toward observation status over inpatient admissions, are driving the trend of weak or declining utilization, Arrick said. “Sometimes you're shooting yourself in the foot while you're doing the right thing,” he said.

    Meanwhile, as high-deductible insurance plans become increasingly common, cost consciousness on the part of consumers is also affecting hospitals' top and bottom lines as patients paying higher out-of-pocket costs choose to postpone or skip certain procedures.

    “Healthcare demand is not as inelastic as we thought,” Arrick said.

    But even with the pressures on revenue, healthcare organizations are spending money on information technology infrastructure and physician practices, areas that require significant capital outlay now but that analysts see as providing benefits over the long term.

    Activity around mergers and acquisitions, not just of physician practices, but of other hospitals and systems, is also expected to continue, according to all three agencies. But Arrick cautions that as the agencies upgrade individual credit ratings as a result of M&A, these are often false positives as weaker systems are absorbed into stronger ones.

    “Downgrades are really exceeding upgrades,” he said.

    Follow Rachel Landen on Twitter: @MHrlanden

    More [email protected] Coverage

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    drug price transparency 2
    OptumRx launches equity initiatives as lawmakers scrutinize PBMs
    Money arrows increase up
    Takeaways from health systems' first-quarter earnings results
    Most Popular
    1
    More healthcare organizations at risk of credit default, Moody's says
    2
    Centene fills out senior executive team with new president, COO
    3
    SCAN, CareOregon plan to merge into the HealthRight Group
    4
    Blue Cross Blue Shield of Michigan unveils big push that lets physicians take on risk, reap rewards
    5
    Bright Health weighs reverse stock split as delisting looms
    Sponsored Content
    Daily Finance Newsletter: Sign up to receive daily news and data that has a direct impact on the business and financing of healthcare.
    Get Newsletters

    Sign up for enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today
    MH Magazine Cover

    MH magazine offers content that sheds light on healthcare leaders’ complex choices and touch points—from strategy, governance, leadership development and finance to operations, clinical care, and marketing.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS

    Our Mission

    Modern Healthcare empowers industry leaders to succeed by providing unbiased reporting of the news, insights, analysis and data.

    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • News
      • Current News
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • Digital Health
      • Transformation
        • Patients
        • Operations
        • Care Delivery
        • Payment
      • ESG
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition (Web Version)
    • Opinion
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Events & Awards
      • Awards
        • Nominate/Eligibility
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Excellence in Governance
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top Innovators
        • Diversity in Healthcare
          • - Luminaries
          • - Top 25 Diversity Leaders
          • - Leaders to Watch
        • Women in Healthcare
          • - Luminaries
          • - Top 25 Women Leaders
          • - Women to Watch
      • Conferences
        • Digital Health Transformation Summit
        • ESG: The Implementation Imperative Summit
        • Leadership Symposium
        • Social Determinants of Health Symposium
        • Women Leaders in Healthcare Conference
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Diversity Leaders Gala
        • Top 25 Women Leaders Gala
      • Virtual Briefings
        • - Hospital of the Future
        • - Value Based Care
        • - Hospital at Home
        • - Workplace of the Future
        • - Digital Health
        • - Future of Staffing
        • - Hospital of the Future (Fall)
      • Webinars
    • Multimedia
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Video Series - The Check Up
      • Sponsored Video Series - One on One
    • Data Center
      • Data Center Home
      • Hospital Financials
      • Staffing & Compensation
      • Quality & Safety
      • Mergers & Acquisitions
      • Data Archive
      • Resource Guide: By the Numbers
      • Surveys
      • Data Points
    • Newsletters
    • MORE+
      • Contact Us
      • Advertise
      • Media Kit
      • Jobs
      • People on the Move
      • Reprints & Licensing