New York, August 30, 2011 -- New medians data available from fiscal year 2010 further illustrate current
challenges faced by the U.S. not-for-profit
healthcare sector and support the reasons for the sector's ongoing
negative rating outlook, says Moody's Investors Service in
a new report.
"Operating pressure in place when the outlook was changed to negative
in October 2008 are fully captured in the underlying trends shown in the
fiscal year 2010 medians -- namely weaker revenue and volume
growth trends," said Moody's Vice President --
Senior Credit Officer Beth Wexler, author of the mid-year
outlook and medians report.
Most US not-for-profit hospitals struggled with weakening
revenue growth in 2010 but still maintained stable financial performance
and achieved somewhat improved balance sheet positions.
In a significant trend, median growth rate of net patient revenues
and total operating revenues slowed to just 4.1% and 4.0%,
respectively, with continued pressure expected in FY 2011.
Median growth rate of inpatient admissions turned negative, -0.4%
in FY 2010, following no growth in FY 2009. Several outpatient
indicators, such as emergency room visits, outpatient visits,
and outpatient surgeries, also showed declining growth rates.
"The declining median growth rates for these volume indicators are
mostly due to the persistently sluggish economy as patients are deferring
care," said Wexler. "A stubborn unemployment
rate also translates into greater uncompensated care for hospitals."
Moody's recently revised its expectations downward for near-term
economic growth and the rating agency also expects unemployment to remain
above 8% through 2012.
Even though the 2010 median showed continued growth in government payments
into the healthcare system, uncertainty about healthcare reform
and expectations of inevitable Medicare cuts are on the horizon and support
the negative outlook, according to the Moody's report.
"The federal deficit will further pressure hospital revenues,
and we also expect lower rate increases from commercial payers as they
face their own increased regulatory requirements under reform,"
said Wexler. "We also expect weaker revenue and volume trends
to continue in FY 2011 and FY 2012, leading to a further downturn
in the reported median data next year."
On the upside, Moody's reports that an intense focus on controlling
operating spending led to improvement in key FY 2010 operating measures
and improved debt coverage ratios. Total cash and investments as
well as liquidity metrics also showed improvement due to stock market
gains (now likely tempered), lower capital spending, and moderately
higher retained earnings.
The report, "U.S. Not-for-Profit
Hospital Medians Show Resiliency Against Industry Headwinds But Challenges
Still Support Negative Outlook ," is available at moodys.com.
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New York
Beth I. Wexler
VP - Senior Credit Officer
Public Finance Group
Moody's Investors Service, Inc.
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New York
John C. Nelson
MD - Public Finance
Public Finance Group
Moody's Investors Service, Inc.
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Moody's: FY 2010 medians data confirm negative outlook for US not-for-profit healthcare