Not-for-profit hospitals faced financial pressure last year as they saw expenses rise from drug and labor costs but revenue dipped due to shrinking reimbursement. In fiscal 2016, not-for-profits annual expenses outpaced revenue by nearly 1%, according to a report Tuesday from Moody's Investors Service. Expenses grew by 7.5% for not-for-profit hospitals while revenue only grew by 6.6%.
Moody's analysts said revenue growth likely slowed in 2016 because of shrinking reimbursement from payers and "stressed" insurance exchanges. Expenses were also on the rise because of labor costs, pension funding and drug costs.
Not-for-profit hospitals' operating margin and operating cash flow were also down from 2015, at 2.7% and 9.6% respectively, but they remained within the normal range.
Volume at not-for-profit hospitals stayed strong in 2016, but growth rates for inpatient measures declined. This reflects that coverage expansion under the Affordable Care Act has largely stabilized and that the push to value-based has taken hold, Moody's said.
At the same time, the outpatient sector saw substantial growth last year. Outpatient visits grew by 5% compared to 2015 and outpatient surgeries rose by 4.6%.
"These growth trends align with industry incentives to manage population health in low-cost setting," Moody's forecasters said. The analysts added they expect to see continued growth in outpatient settings.
Moody's analysts predict that over the next year rising labor and pharmaceutical costs will pressure not-for-profits. They also expect hospitals' revenue growth to slow down amid declining reimbursement from both private and public payers. Uncertainty over efforts to repeal and replace the ACA also "poses a strong headwind" for not-for-profit hospitals, the report said.