Not-for-profit hospitals will see slower growth in patient demand and cash next year as gains from insurance expansion under the Affordable Care Act fade, but the outlook for the sector remains stable, Moody's Investors Service said Thursday.
The Moody's report is the second this week on the not-for-profit hospital sector. Fitch Ratings was not so optimistic, concluding the sector's outlook remained negative.
Moody's analysts said its outlook would fall to negative if healthcare inflation grows faster than hospital cash flow in the next 12-18 months.
In August Moody's raised the outlook for the sector as demand and cash flow rebounded from the slowdown that began with the Great Recession. Hospital cash flow increased 12% in 2014 and 10% through June as insurance expansion increased access to care for millions of Americans, Moody's said.
Demand among the newly insured was apparent in federal estimates for health spending released this week. Spending increased 5.3% during the first year of expansion after hovering at or below 4% for the prior five years.
But that pace of growth won't last, according to Moody's. “We expect the current strong growth in patient volumes and cash flow will return to normal levels over the outlook horizon because some of the factors driving recent strong performance, such as gains in insurance coverage and strong patient volume growth, will not be repeated in 2016,” Moody's analysts wrote.
Cash flow growth will slow to 3% to 4% next year. Growth began to cool this summer, and next year hospitals are expecting no change in volume, the report said. More patients continue to get care outside of hospitals where the care is cheaper, which also erodes revenue.
Hospitals can also expect more a more moderate financial boost from the decline in unpaid medical bills, or bad debt. Most of the benefits from less bad debt have been limited to hospitals in states that expanded Medicaid.
Strategic investment in preventive care, care coordination, acquisition of ambulatory care and insurance companies also present a financial risk, Moody's said.
“Successful population health strategies will result in lost revenue unless hospitals successfully enter into risk sharing contracts or make investments to capture volume in lower cost settings,” the report said.