Aug. 19—A recently finalized Medicare inpatient rate increase was small enough to count as a "credit negative" in future credit ratings of not-for-profit hospital debt, according to a rating firm.

Moody's Weekly Credit Outlook for Public Finance concluded that the 0.7 percent inpatient prospective payment system increase—0.5 percent for hospitals not participating in a quality improvement program—was "materially below the pace that hospital costs are rising." The Medicare rate increase, which was finalized Aug. 2, was much smaller than the 2.8 percent boost the Centers for Medicare & Medicaid Services provided in the previous year and "not enough" to cover the 2.5 percent expected increase in hospitals' costs, the report noted.

The impact of the new Medicare rates on not-for-profit hospitals' overall financial outlook was magnified by such payments comprising an average of 44 percent of the gross revenues of the not-for-profit hospitals that Moody’s rates.

"Indeed, Medicare reimbursement rate increases have for several years been below the rate of hospital expenditure growth as measured by the market basket update, which is CMS’s measure of hospitals cost inflation," the report stated.

Moody's credit negative declaration did not connote a rating or outlook change but indicated the impact of a distinct event or development as one of many factors that affect the credit outlook of entities issuing debt, according to the firm.

Publication Date: Monday, August 19, 2013