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Moody’s see stable finances for for-profit hospitals

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Moody’s Investors Service sees the financial outlook for U.S. for-profit hospitals as stable.

Key to this forecast is the expectation that outpatient services will drive revenue and earnings growth. The ratings company sees outpatient service growth fueling a 2.5-3 percent earnings growth for for-profit hospitals over the next 18 months as much of American healthcare, under pressure from consumers and public and private insurers, seeks lower-cost settings. At the same time, Moody’s predicted,  higher patient costs and an increase in the number of uninsured Americans may lead to more bad debt for hospitals.

Moody’s noted that patients with high-deductible health plans will seek less costly settings than hospitals to save money. Also, the company said, the CMS’s proposal to let more orthopedic procedures be done on an outpatient basis could do more financial damage to hospitals.

Moody’s warned:

“Higher patient responsibility and fewer insured patients will lead to lower volumes, but also higher costs of uncompensated care. Even with strong cost controls, given the high fixed costs of operating hospitals, it will be difficult to expand margins in an environment of weak patient volumes and rising bad debt expense. At the same time, nursing shortages and rising fees associated with medical specialists (including outsourced emergency departments) will also pressure margins.’’

Still, profit margins of some for-profit systems may well widen in the coming months, Moody’s said. citing Quorum Health and Community Health Systems (CHS) benefiting from selling off less profitable facilities and LifePoint Health and HCA Healthcare improving efficiencies at recently acquired facilities.

Moody’s expects for-profit hospitals in Texas and Florida will recover quickly from losses associated with recent hurricane damage.

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