As hospitals around the country continue to consolidate and streamline operations, a leaner healthcare industry is also becoming more profitable.
Moody's Investors Service Monday said there's a stable outlook for the U.S. for-profit hospital sector.
The industry is benefiting from the expansion of insurance coverage under the Affordable Care Act, and overall, expects growth of about 3% to 3.5% over the next 12 to 18 months, Moody's said in its report.
Lower bad-debt expenses will continue to benefit hospitals' operating results, the report stated, and the number of uninsured individuals will decrease as insurance coverage expands under the ACA. According to a Centers for Disease Control and Prevention survey released this month, the percentage of uninsured people in the U.S. dropped below 10% this year for the first time in decades. The 31 states including the District of Columbia that have already expanded their Medicaid programs have seen the greatest reductions in bad debt expense, and other states will keep benefiting from increased awareness of coverage options, Moody's said.
While the outlook is stable, growth rates through 2016 will return to normal levels, down from the boom seen in 2014, after the initial expansion of insurance coverage, the report said. Utilization of healthcare services at first grew quickly because more newly insured people used the healthcare system. But, the rate of growth will slow as the number of newly insured people declines and the pool of people seeking long-delayed healthcare services shrinks, Moody's said.
A sleeker system will continue to emerge, Moody's said, and amid mergers and government streamlining, the pace of healthcare reimbursement and delivery will accelerate. Mergers such as Aetna's acquisition of Humana and Anthem's deal to buy Cigna Corp. will likely shift the power in pricing negotiations away from hospitals and to the payer, the report said. Small hospital operators might seek additional consolidation or may cede their markets to giants. Meanwhile, the CMS intends to move 50% of Medicare payments into alternative payment models such as accountable care organizations or bundled payments, and to tie 90% of Medicare payments to quality or value by 2018.
Earnings could rise based on stronger than anticipated growth in inpatient admissions, or a decline in bad-debt expense that outpaces hospital operators' reductions in Medicare reimbursements. Conversely, earnings could decline amid a significant change in reimbursement rates or legislative cuts to government spending for hospital services, Moody's said.
Last week, Moody's upgraded the outlook on not-for-profit hospitals to stable from negative for the first time since 2008.
The sector is benefiting from increased patient volume and a reduction in bad debt, which are having a positive effect on operating cash flow, Moody's said in a report. The impact was most evident in states that expanded eligibility for their Medicaid programs.
