Management's initiatives toward stable operating performance support a stable outlook for nonprofit hospitals and healthcare systems in 2013, according to a Fitch Ratings report.

"A continued focus on operating efficiency, stable reimbursement levels, modest managed care rate increases, and a higher than expected 2013 Medicare market basket increase all contribute to a stable landscape," said Jim Lebuhn, senior director. "However, Fitch believes there is increased uncertainty beyond 2013 as opportunities for further cost cutting wane and a wave of expected reimbursement reductions are realized under the full implementation of the Patient Protection and Affordable Care Act (PPACA) beginning in 2014."

Providers have been preparing for a move away from a fee-for-service environment to one that is focused on quality and cost. The full financial impact of PPACA remains uncertain as reduced reimbursement for Medicare and Medicaid should be mitigated by the expanded coverage for the uninsured through the creation of health insurance exchanges and expansion of Medicaid eligibility.

The hospital industry is facing an automatic 2% reduction in Medicare reimbursement beginning in January 2013 if the federal government fails to avoid the fiscal cliff. Although any reimbursement reduction is viewed negatively, Fitch believes hospitals should be able to absorb the impact of the reduction since many use conservative assumptions surrounding governmental reimbursement in their budgeting process. However, lower-rated credits are expected be affected to a greater degree than higher-rated credits.

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