The not-for-profit healthcare sector's operating revenue growth hit an all-time low last year as a national shift toward outpatient and preventative care led to a decline in in-patient visits, according to a report from Moody's Investors Service.
Median operating revenue growth slowed to 3.9% in 2013 from 5.1% in 2012, Moody's found. Expense growth outpaced revenue growth in 2013 for a second consecutive year, a trend the rating agency deemed "unsustainable."
Moody's doesn't anticipate conditions will improve in the near term, and has the sector placed on negative outlook. The declines are the steepest since the Great Recession in 2009.
Profitability in the sector has been challenging since the Affordable Care Act was enacted, as delayed compliance deadlines, the botched rollout of healthcare.gov, and uncertainty over whether states would participate in Medicaid expansion made it harder for hospitals to set strategy. Moody's said it expected the ACA's individual mandate, which took effect Jan. 1, to have minimal impact this year due to low enrollment levels. The mandate and Medicaid expansion may mitigate declines in revenue in 2015 for the states that chose to participate, Moody's said.
Of the 383 hospitals and health systems surveyed, 96 reported an operating loss in 2013, up from 66 in 2012 and 53 in 2011. Operating income has been muted as well. Half of the providers Moody's rates reported a decline in absolute operating income, a similar percentage to 2012 and an increase from 2011, according to the report.
Declines in inpatient admissions accelerated in 2013 as all utilization growth slowed. The median inpatient admissions growth rate was a negative 1.3% after being flat since 2009. The change reflects a push away from hospitalization and toward preventative and out-patient care, which are encouraged by new federal regulations.
On top of absolute volume declines, the remnants of the fee-for-service business model reinforced Moody's negative outlook on business conditions in the not-for-profit hospital sector, even as federal reimbursement models shifted.
Income to offset the loss from declining inpatient volumes hasn't materialized yet. Thanks in part to across-the-board spending cuts known as sequestration, reimbursements from Medicare, the largest insurer for providers, have been muted. Medicare tops the list of insurers again in 2013, continuing a multi-year trend of increases and researching a peak of 44.4%, according to Moody's. Meanwhile, commercial insurers' declined to an all-time low of 32.4%, according to the Moody's report.
The increasing exposure to Medicare payors is problematic for hospitals because commercial insurers are the highest reimbursing payors and serve as a buffer against losses from Medicaid and non-insured populations.
On a positive note, a strong equity market in 2013 allowed healthcare entities to increase their unrestricted absolute and relative liquidity measures, according to the report. The gains in liquidity measures may also be attributed to a slowdown in capital spending experienced since 2009, as hospitals have taken a "wait and see" attitude toward capital investment as they gauged healthcare reform implementation.
The financial pressures had led to a decline in overall ratings for healthcare credits by Moody's. The agency has no entities rated over Aa, while a majority of the credits, 49%, carry an A rating, according to the report. Another 17% re in the Aa range, while a quarter are in the Baa range and about 10% and below Baa.
The report include information on the medians for 383 freestanding hospital, single state health systems, and multi-state healthcare systems, which account for 88% of all of the agency's rated healthcare entities. Hospitals with less than five years of operating data and specialty hospitals, such as cancer centers, weren't included.
