Not-for-profit hospitals' cost-cutting isn't keeping up with revenue decline
Skip to main content
MDHC_Logotype_white
Subscribe
  • My Account
  • Login
  • Subscribe
  • News
    • This Week's News
    • COVID-19
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • People
    • Regional News
    • Digital Edition
    • COVID bill greatly expands federal help for health insurance, potentially Medicaid
      COVID-19 claims 15 people in life of one Milwaukee woman
      Nurses at Tenet hospital in Massachusetts walk off the job
      Insurers see traditional Medicare hold steady despite Advantage growth
    • COVID bill greatly expands federal help for health insurance, potentially Medicaid
      COVID-19 claims 15 people in life of one Milwaukee woman
      Nurses at Tenet hospital in Massachusetts walk off the job
      Provider division loss slimmed ProMedica's margin in 2020
    • Dr. Sanjeeb Khatua
      Q&A: UnityPoint tackles vaccine hesitancy through targeted and fact-based messaging
      The Check Up: Dr. Sanjeeb Khatua
      The Check Up: Dr. Sanjeeb Khatua of UnityPoint Clinic
      Shareholder group calls out HCA for alleged excessive emergency department admissions
      Metrologo 600x400_i.jpg
      MetroHealth forms Center for Cancer Research
    • By the Numbers: Insurers owing largest MLR rebates
      A younger woman provider helping an older woman on a tablet.
      Insurers set sights on growth in Medicare Advantage, Medicaid managed care
      5 things to know about Alignment Healthcare's proposed IPO
      Solid sign-ups for Biden's new Obamacare coverage offer
    • COVID bill greatly expands federal help for health insurance, potentially Medicaid
      Florida didn't ensure abuse and neglect reporting in nursing homes, watchdog finds
      Moderna Vaccine09-main_i.jpg
      Divvying up doses: How Michigan's race, income factors impact vaccine allotments across the state
      MedPAC likely to recommend an effective cut in Medicare Advantage spending
    • 369178053.jpg
      Shares of insurer Oscar Health fall following $1.4B IPO
      Sutter Health posts sizable 2020 loss, announces sweeping review of finances
      UPMC's patient volumes stabilize, boosting 2020 profits
      Genomics firms taking advantage of SPACs trend to go public faster
    • California's vaccine appointment website has glitches. No surprise?
      Abbott gets emergency use authorization for test that detects COVID-19, other infections
      Insurance regulator to issue warning on virus-test billing
      351532635.jpg
      Red-hot virtual care market propels New York City health startups to record year
    • COVID-19 claims 15 people in life of one Milwaukee woman
      CRISPR screens identify host factors required for coronavirus infection
      Workers worry about safety, stress as states ease mask rules
      Doctors performing surgery
      Doctor appears in court video call while performing surgery
    • Francoise_Adan1_i.jpg
      Cleveland's UH creates position of chief whole health and well-being officer
      Alicia Wilson
      Q&A: Emerging leader Alicia Wilson on staying close to home
      Michael Jordan, Novant team up to address health equity
      Former Ascension CEO, the first to lead the health system, passes away
    • Midwest
    • Northeast
    • South
    • West
  • Insights
    • ACA 10 Years After
    • Best Practices
    • Special Reports
    • Innovations
    • The Affordable Care Act after 10 years
    • Dr. John Fischer
      Patient-reported outcomes tool for hernia surgery helps physicians improve care
      New care model helps primary-care practices treat obesity
      doctor with patient
      COVID-19 treatment protocol developed in the field helps patients recover
      Rachel Wyatt
      Project to curb pressure injuries in hospitals shows promise
    • What's next for on-demand telehealth companies?
      A CalOptima PACE vaccination clinic.
      Will COVID-19 be the catalyst for creating a more sustainable healthcare system?
      A map of the U.S. with images of the coronavirus.
      The digital divide becomes a new social determinant of health
      Ascension’s St. Mary’s Hospital Surgery Center at Towne Centre and Allegheny Health Network’s Bethel Park surgery center
      Hospitals see opportunity, risk in ambulatory surgery centers
    • Ryan McGinnis
      Finding efficiencies in the OR using tech
      Dr. Daniel Hall
      UPMC pilots machine learning, telehealth to inform patient transfers
      A woman being recorded using her inhaler on a smartphone.
      Digital check-ins, connected inhalers help control asthma
      A phone screen showing the question, "Mary we hope this information was helpful and we'd like to keep guiding you. Are you interested in knowing when it's your turn to receive the vaccine?"
      Chatbots, texting campaigns help manage influx of COVID vax questions
  • Transformation
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • What's next for on-demand telehealth companies?
      Rising prescription copays drop adherence, spike mortality, research shows
      Dr. John Fischer
      Patient-reported outcomes tool for hernia surgery helps physicians improve care
      Highmark Health inks six-year cloud, tech deal with Google
    • Ryan McGinnis
      Finding efficiencies in the OR using tech
      Hospitals' Medicare billing practices suggest upcoding, OIG says
      California hospitals prepare ethical protocol to prioritize lifesaving care
      Amazon, JPMorgan Chase, Berkshire Hathaway disband Haven
    • Dr. Daniel Hall
      UPMC pilots machine learning, telehealth to inform patient transfers
      A woman being recorded using her inhaler on a smartphone.
      Digital check-ins, connected inhalers help control asthma
      Humana partners with in-home provider for 24/7 care
      A phone screen showing the question, "Mary we hope this information was helpful and we'd like to keep guiding you. Are you interested in knowing when it's your turn to receive the vaccine?"
      Chatbots, texting campaigns help manage influx of COVID vax questions
    • MedPAC likely to recommend CMS simplify alternative payment models
      Bundled payments reduce surgery costs by 10.7%
      Coordinated payment policies could speed transition to value, experts say
      CMMI's geographic direct contracting model needs an overhaul, experts say
  • Data/Lists
    • Rankings/Lists
    • Interactive Databases
    • Data Points
    • Health Systems Financials
      Executive Compensation
      Physician Compensation
  • Op-Ed
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
    • Dr. Alan Kaplan
      The risks, rewards of taking organizations 'where they haven’t gone before'
      Wellstar CEO calls adapting for the pandemic her bold move
      Howard P. Kern
      Recognizing the value of telehealth in its infancy
      Dr. Stephen Markovich
      A bold move helped take him from family doctor to OhioHealth CEO
    • Dr. Stephen Markovich
      Making sure we're aligned along the path to achieving inclusion
      Barry Ostrowsky
      Ending racism is a journey taken together; the starting point must be now
      Laura Lee Hall and Gary Puckrein
      Increased flu vaccination has never been more important for communities of color
      John Daniels Jr.
      Health equity: Making the journey from buzzword to reality
    • The COVID-19 experience and its influence on post-pandemic health policy
      Haven is history, but its mission is the future of healthcare
      Vaccinating children could be the key to ending the pandemic
      Mikelle Moore
      The promising future of rural healthcare, even amid the COVID-19 pandemic
    • Letters: Eliminating bias in healthcare needs to be ‘deliberate and organic’
      Letters: Maybe dropping out of ACOs is a good thing for patients
      Letters: White House and Congress share blame for lack of national COVID strategy
      Letters: VA making strides to improve state veterans home inspections
    • Sponsored Content Provided By Optum
      How blockchain could ease frustration with the payment process
      Sponsored Content Provided By Optum
      Three steps to better data-sharing for payer and provider CIOs
      Sponsored Content Provided By Optum
      Reduce total cost of care: 6 reasons why providers and payers should tackle the challenge together
      Sponsored Content Provided By Optum
      Why CIOs went from back-office operators to mission-critical innovators
  • Awards
    • Award Programs
    • Nominate
    • Previous Award Programs
    • Other Award Programs
    • Best Places to Work in Healthcare Logo for Navigation
      Nominations Open - Best Places to Work in Healthcare
      Nominations Open - 50 Most Influential Clinical Executives
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top 25 Innovators
    • Minorities in Healthcare
      • - Luminaries
      • - Top 25 Minority Leaders
      • - Minorities to Watch
    • Women in Healthcare
      • - Luminaries
      • - Top 25 Women Leaders
      • - Women to Watch
    • Excellence in Nursing Awards
    • Design Awards
    • Top 25 COOs in Healthcare
    • 100 Top Hospitals
    • ACHE Awards
  • Events
    • Conferences
    • Galas
    • Webinars
    • COVID-19 Event Tracker
    • podium march webinar logo lockup
      Sponsored Content Provided By Podium
      Webinar: Critical Touchpoints for Every Patient’s Journey — How Technology Plays an Important Role
      scp health logo lockup march 2021
      Sponsored Content Provided By SCP Health
      Webinar: COVID’s call to action — Reset for success in 2021
    • Women Leaders in Healthcare Conference
    • Social Determinants of Health Symposium
    • Healthcare Transformation Summit
    • Leadership Symposium
    • Virtual Briefings
      • - Hospital of the Future
      • - Mental Health
      • - Patient Safety & Quality
      • - Strategic Marketing
      • - Virtual Health
      • - Workplace of the Future
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Minority Leaders Gala
    • Top 25 Women Leaders Gala
  • Listen
    • Podcast - Next Up
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Video Series - The Check Up
    • Sponsored Video Series - One on One
    • Empty boardroom
      Next Up Podcast: What's going to happen tomorrow? Succession planning during emergencies
      Next Up Podcast: Educating patients on the COVID-19 vaccine with Tanya Andreadis
      Dr. Joseph Cacchione
      Next Up Podcast: Educating patients on the COVID-19 vaccine with Dr. Joseph Cacchione
      Dr. Karen DeSalvo
      Next Up Podcast: What to expect with telehealth and healthcare technology in the next four years
    • Beyond the Byline: Insurers are betting on virtual-first plans as COVID-19 shifts care pathways
      Beyond the Byline: How residents' stories shape our coverage of the vaccination rollout in nursing homes
      Beyond the Byline: Regulators aim to boost value push with fraud and abuse law updates
      An older man wearing a mask receiving a vaccine.
      Beyond the Byline: Verifying information on the chaotic COVID-19 vaccine rollout
    • Outreach during COVID-19
      Leading intention promote diversity and inclusion
      Introducing Healthcare Insider Podcast
    • The Check Up: Dr. Sanjeeb Khatua
      The Check Up: Dr. Sanjeeb Khatua of UnityPoint Clinic
      The Check Up: Dr. Marc Boom
      The Check Up: Dr. Marc Boom of Houston Methodist
      The Check Up: Dr. Imran Andrabi
      The Check Up: Dr. Imran Andrabi of ThedaCare
      The Check Up: Tanya Blackmon
      The Check Up: Tanya Blackmon of Novant Health
    • ivana naeymi-rad one on one intelligent medical objects
      Video: Ivana Naeymi Rad of Intelligent Medical Objects
  • MORE +
    • Advertise
    • Media Kit
    • Newsletters
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Providers
August 29, 2018 01:00 AM

Not-for-profit hospitals' cost-cutting isn't keeping up with revenue decline

Alex Kacik
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print

    Not-for-profit hospitals have begun to rein in expenses, but it's not happening as fast as revenue growth is dropping, setting the sector on a tenuous precipice, according to a new report.

    The median annual expense growth rate fell from 7.1% in 2016 to 5.7% in 2017 but annual revenue growth declined faster, from 6.1% to 4.6%, despite increased merger and acquisition activity, according to Moody's Investors Service.

    While not-for-profit hospitals have curtailed labor and supply costs, lower reimbursement rates, the shift to outpatient care and increased ambulatory competition have shackled revenue.

    This marks the second consecutive year expenses outpaced revenue, which will remain the largest strain on not-for-profit hospital profitability through 2019, Moody's analysts said.

    "This is no longer solely about expense reduction. If not-for-profits just focus on that, they will be out of business in the next few years," said Lyndean Brick, president and CEO of healthcare consultancy the Advis Group. "They have to grow volumes, be creative and do things differently than they have done."

    While not-for-profit health systems have started to curb expenses, more should look to grow volumes by embracing physician-led ambulatory surgery centers, bolstering managed-care plans, doing more direct contracting and monetizing operations like food services, Brick said.

    Median Medicare and Medicaid payments as a percentage of gross revenue slightly increased to 45.6% and 15.5% in 2017, respectively, while the higher-paying commercial sector nudged down to 31.9%, according to Moody's. Government payers' share of hospital revenue will likely increase as the population ages, which has manifested in each of the last five years.

    Notably, less than 3% of net patient revenue came from capitation and risk-based contracting in 2017. Most reimbursement was derived from diagnosis-related group payment (41%), fee schedule (28%) or from a percentage of the chargemaster or list price (17%).

    "They have to monetize their assets," Brick said. "They have to look at nontraditional revenue as a key driver in their future success."

    Moody's expects more margin pressure through 2018 after median margins fell to an all-time low of 1.6% operating margin and 8.1% of operating cash flow. Income from operations was nearly cut in half from 2016 to 2017.

    Another emerging trend is a large jump in hospitals with operating deficits and lower operating cash flow in 2017. More than 28% of hospitals reported operating losses last year, which rose from 16.5% in 2016. The 59% of providers reporting lower absolute operating cash flow is more than double the 24% reported in 2015—the highest percentage in five years.

    While not-for-profit hospitals have reduced their debt over the last five years, their debt service coverage ratios have softened, Moody's found. Funding capital needs through debt financing could exacerbate that trend, Moody's analyst Rita Sverdlik said.

    Investment income has provided a buffer, boosting the unrestricted cash and investments growth rate from about 5% to 9%, although that could change if the market turns, she said.

    "Reversing sluggish volume trends and growing profitable service lines will be critical to improving the sector's financial trajectory over the near-term as most hospitals continue to operate in a fee-for-service environment," Sverdlik said in a statement.

    As hospitals revamp their operations, suppliers and vendors also need to be held in check, Brick said.

    "It's important that the healthcare industry underscores a similar cost reduction pressure that hasn't yet been fully achieved on the supplier and vendor side," she said. "There needs to be some pressure on them to drop their prices."

    Median outpatient growth rates exceeded inpatient growth rates for the fifth straight year as the sector shifts to less expensive care.

    Median 1% growth in inpatient admissions in 2017 marks the lowest rate of growth in the last three years. Similarly, the reduced median rate of growth in outpatient visits to 2.2%—down for the first time in five years—and the decline in the median growth rate of outpatient surgeries to 0.8% speak to the increasing supply of competing sites providing these more lucrative services, Moody's analysts said.

    Inpatient volume decline is part of the reason why hospitals have been closing at a rate of about 30 a year, according to the American Hospital Association.

    "They can't grow volume if they are not right-sized," Brick said. "That might mean shutting down a unit that is marginal or shut down a hospital so you can focus resources on programs and venues that have real potential for growth."

    Some health systems are funding housing projects and turning underutilized hospitals into assisted living facilities. But that isn't being done on a large scale, Brick said

    "The No. 1 thing to do is think outside of the box," she said. "They have a captured market that they can sell to, just as Amazon Prime members are being marketed to."

    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
    The Check Up: Dr. Sanjeeb Khatua of UnityPoint Clinic
    The Check Up: Dr. Sanjeeb Khatua of UnityPoint Clinic
    Q&A: UnityPoint tackles vaccine hesitancy through targeted and fact-based messaging
    Q&A: UnityPoint tackles vaccine hesitancy through targeted and fact-based messaging
    Sponsored Content
    Get Free Newsletters

    Sign up for free 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

    The weekly magazine, websites, research and databases provide a powerful and all-encompassing industry presence. We help you make informed business decisions and lead your organizations to success.

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

    Stay Connected

    Join the conversation with Modern Healthcare through our social media pages

    MDHC_Logotype_white
    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 © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • News
      • This Week's News
      • COVID-19
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition
    • Insights
      • ACA 10 Years After
      • Best Practices
      • Special Reports
      • Innovations
    • Transformation
      • Patients
      • Operations
      • Care Delivery
      • Payment
    • Data/Lists
      • Rankings/Lists
      • Interactive Databases
      • Data Points
    • Op-Ed
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Awards
      • Award Programs
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top 25 Innovators
        • Minorities in Healthcare
          • - Luminaries
          • - Top 25 Minority Leaders
          • - Minorities to Watch
        • Women in Healthcare
          • - Luminaries
          • - Top 25 Women Leaders
          • - Women to Watch
      • Nominate
      • Previous Award Programs
        • Excellence in Nursing Awards
        • Design Awards
        • Top 25 COOs in Healthcare
      • Other Award Programs
        • 100 Top Hospitals
        • ACHE Awards
    • Events
      • Conferences
        • Women Leaders in Healthcare Conference
        • Social Determinants of Health Symposium
        • Healthcare Transformation Summit
        • Leadership Symposium
        • Virtual Briefings
          • - Hospital of the Future
          • - Mental Health
          • - Patient Safety & Quality
          • - Strategic Marketing
          • - Virtual Health
          • - Workplace of the Future
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Minority Leaders Gala
        • Top 25 Women Leaders Gala
      • Webinars
      • COVID-19 Event Tracker
    • Listen
      • Podcast - Next Up
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Video Series - The Check Up
      • Sponsored Video Series - One on One
    • MORE +
      • Advertise
      • Media Kit
      • Newsletters
      • Jobs
      • People on the Move
      • Reprints & Licensing