In several high-profile states, the good news/bad news scenario is rising demand and diminishing payment, according to Not-for-Profit Hospitals: 2006 State of the States, a report by Moody’s Investors Service. The report analyzed seven states with a high amount of debt outstanding, significant rating changes during 2005, and important legislative changes. The good news is that aging baby boomers are generating tremendous demand for healthcare services, which will spur favorable financial performance of hospitals. Currently, hospitals in Florida and California are having to expand to accommodate high growth in population.
But hospitals should also expect “dramatic” state programs to curb Medicaid spending, now that recent legislation has given states more latitude to increase Medicaid premiums and co-pays and reduce coverage. Tennessee hospitals, for example, are reducing expenses and attempting to negotiate higher rates from commercial payers to offset an expected rise in charity care and bad debt caused by cutbacks in the state’s Medicaid program. In Pennsylvania, the winnowing of excess bed capacity has resulted in more favorable provider negotiations with managed care plans, but the state’s Medicaid managed care program has reduced hospital revenue by slowing rate of growth of payments to managed care organizations. New Jersey’s Medicaid program, however, was expanded to cover more uninsured people, but funding for the expected tripling of Medicaid enrollment remains uncertain. Yet despite difficult operating conditions, hospitals in California and Pennsylvania had more credit upgrades than downgrades in 2005 as they closely managed their costs, had favorable reimbursement, and capitalized on profitable service lines.
