Operating performance last year improved across the board for not-for-profit hospitals in the U.S. but that trend is not expected to continue this year, according to a Fitch Ratings analysis.
The report, published this week by the Chicago-based credit-rating agency, found the average operating margin across not-for-profit hospitals improved from 3% in fiscal 2014 to 3.5% in 2015. At the same time, the average operating margin before interest and taxes also improved from 9.7% in 2014 to 10.3% in 2015.
The analysts said the rise in margins was because of “improved cost efficiencies, higher number of patients with insurance coverage and greater focus on revenue-cycle improvement and fee collections.” Hospital managers have also gotten better at managing more patients, they added.
Despite the improvements last year, Fitch analysts said they expect operating performance will be “more volatile” in 2016 and beyond as the CMS further implements value-based reimbursement models and reimbursement rates decrease overall.
The analysts predict pressures from the Affordable Care Act will fully emerge in 2016 with more labor and wage pressures for clinical staff and an increased need to address population health.
In the next 36 months, the analysts predict enrollment in risk-based payer contracts will “gain momentum.” The transition will likely “heighten existing pressure on operating margins,” especially for hospitals with less experience in managing risk, the analysts said.
More merger and acquisition activity among small providers and large systems is also expected to continue as the pressure rises to boost more comprehensive services across larger market areas.
Fitch Ratings and other credit-rating agencies have mostly had a negative outlook on not-for-profit hospitals over the past few years. The agencies largely blame pressures related to new reimbursement models.
For-profit hospitals have had a more positive outlook. In January 2015, Fitch characterized their environment as stable because they've cut costs and adopted new initiatives to bring in more patients.