Nov. 27—Faster growth in costs than revenue has led Moody’s Investors Service to give a negative 2014 outlook for not-for-profit hospitals.

The rating agency expects the hospitals’ median revenue growth to decline to 3 percent to 3.5 percent in FY13. That would be a sharp drop from FY12’s 5.2 percent growth rate. Low revenue growth also is expected for FY14.

“Not-for-profit hospitals face a challenging landscape over the next 12 to 18 months as patient volumes shrink and revenue growth slows," Daniel Steingart, assistant vice president at Moody’s, said in a release.

The outlook has remained negative for not-for-profit hospitals since 2008.

The slowing revenues were blamed on cost control efforts implemented by the Affordable Care Act (ACA), insurance companies, employers and other industry participants.

Factors Driving the Slowdown

Specific cost-control measures behind the slowdown include an effective 1.3 percent FY14 Medicare payment reduction and ACA required cuts in disproportionate share hospital payments that began Oct. 1. Moody’s also expects commercial rate increases of 0 to 5 percent, which are far below their historical increases.

Expenses for not-for-profit hospitals grew faster than revenues for the second year in the row. They were driven by continued hospital spending on information technology and expansion of physician practices. Practices generally operate at a loss but seen as needed provide referrals.

The hospital outlook also is complicated by recently implemented ACA provisions that have resulted in the insured population “growing unevenly.” The extent to which ongoing technology problems in the federal marketplace have limited insurance enrollments remains unknown, according to the rating agency.

"There are many unknown variables that make budgeting and strategic planning especially difficult over the near term, including how many people will gain insurance coverage through the public exchanges or with what frequency they will access healthcare services," Steingart said.

But even if the marketplaces succeed in enrolling large numbers of uninsured, Moodys warned that the pay rates for such plans will not mirror commercial pay rates. Moody’s discussed those pay rates with hospital executives nationally and concluded they will reimburse hospitals at 20 to 30 percent less than existing commercial plans. Although the marketplace plans’ provider payments will remain higher than Medicare rates, the subcommercial reimbursement levels will contribute to hospitals’ tighter margins, the ratings agency concluded.

Publication Date: Wednesday, November 27, 2013