CHICAGO — Nonprofit hospitals are enjoying strong gains in several key areas, prompting Moody's Investors Service Wednesday to shift its outlook on the sector to stable from negative for the first time in seven years.
Several of the improvements are tied to the new federal health care law and an improving economy, including a rise in the number of insured patients and declining bad debt.
"The outlook revision represents significant gains in the number of people with insurance, growing patient volumes and sizable reductions in bad debt that are contributing to very strong growth in operating cash flow," Moody's said in in its report.
"The stable outlook expresses our view that fundamental business, financial and economic conditions for the not-for-profit healthcare sector will neither erode significantly nor improve materially over the next 12 to 18 months," analysts wrote.
Moody's has maintained a negative outlook on the sector since 2008, when non-profit hospitals began to face a myriad of challenges tied to economic and financial factors.
The ratings agency is not alone in seeing widespread improvements. Fitch Ratings, in a 2014 median report released two weeks ago, noted that hospitals saw surprising gains in 2014 that are expected to continue through 2015. Standard & Poor's is expected to release its medians report in a few weeks.
Operating cash flow across the sector has seen some of the strongest gains, climbing to 12.3% in 2014 from 0.3% in 2013, according to Moody's. It has fallen slightly, to 11.5% through March 2015, the firm said. Analysts attribute the several-year high to greater insurance coverage, growing patient volume and expense controls.
But the sector remains vulnerable to a handful of long-term pressures, such as reimbursement pressure from the rising number of people covered by government insurance, analysts said.
The recent gain in patient volume is not expected to continue, Moody's said, saying volume "can be volatile over short periods and recent strong growth may be viewed as an aberration when measured against long-term trends."
Moody's said it also expects cash-flow growth to moderate over the near term, as the recent surge could be tied to one-time factors such as Medicaid expansion under the Affordable Care Act.
