NEW YORK - Preliminary financial medians for U.S. not-for-profit hospitals and health systems for fiscal year 2011 indicate the likelihood of low revenue growth for the year and tend to confirm the negative outlook for the sector held by Moody's Investors Service.

"Low revenue growth is due primarily to flat volume trends and payer pressures," said AVP-Analyst Sarah Vennekotter, author of a Moody's report on the medians, which are presented by year for three years, 2009-2011, and by rating category.

Although revenue growth based on the preliminary medians data shows some improvement to 5.3% from 4.5% the prior year, Vennekotter explained that this median remains much lower than the over 7% that was historically typical for the sector.

"Inpatient admissions were again flat in 2011, repeating trends seen in 2009 and 2010, and will continue to be a factor in our expectations for lower-than-average revenue growth," said Vennekotter.

Despite the low growth in top-line revenue, operating performance showed stability and hospital management teams extracted expense reductions that resulted in improvement to bottom line profitability, says Moody's. Also, liquidity measures strengthened as the capital markets remained relatively strong in 2011 and hospitals delayed capital spending.

Payer pressure continues to be felt as Medicare and Medicaid now represent 43.7% and 12.8% of gross patient revenues, respectively, based on the preliminary median data, and represents an increase from 42.3% and 11.6% in FY 2009 and 42.5% and 12.2% in FY 2010, according to Moody's.

The report, "Medians Drive Expectation of Low Revenue Growth Given Flat Volume Trends, Payer Pressures," voices concern over the rise in Medicaid as a percentage of gross hospital revenues as numerous states are making cuts to the program to help balance their budgets.

"As for Medicare, it is the single largest payer for most hospitals, and the program continues to grow as the population ages," said Vennekotter. "Medicare cuts are part of the 2010 federal healthcare reform, and the federal government will likely implement more cuts to the program in order to reduce federal budget deficits."

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