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Fairly smooth sailing seen for for-profit hospitals

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Moody’s, the ratings agency, forecasts that for-profit hospitals will do okay over the next 18 months, with earnings growth expected to be in the low single-digits and revenue and pricing continuing to be modestly positive.

“Positive same-facility revenue growth and flat margins drive our stable outlook for the U.S. for-profit hospital sector,” Moody’s senior vice president Jessica Gladstone said. “Aggregate EBITDA will grow 2.5 percent-3.5 percent over the next year or so. Margins will hold steady as company-specific actions offset multiple industry challenges, including higher wage and benefits expense stemming from nursing shortages and increased physician employment.”

Moody’s expects patient volumes to rise 1-2 percent over the next 18 months, with declining unemployment and an aging population among the macro trends that will continue to spur demand for healthcare. “However, structural shifts in payer programs that aim to reduce utilization and the cost of care by shifting patients to lower-cost settings will offset these positive trends,’’ she said.

Igor Belokrinitsky, healthcare strategist at Strategy&, part of PwC, noted to Healthcare Dive that many hospitals are tightening their operations, trying to keep costs frozen in some departments and tinkering with staff and marketing to reduce near-term spending.

“The changes are becoming more dramatic. Fortunately, there’s a bit of a cushion there because what’s been happening over the years is a lot of these hospital systems have consolidated,”  Mr. Belokrinitsky observed. Generally in a hospital merger, the bought property still gets to keep its board, staff, etc. That’s the reserve that’s out there. That’s the value that could be squeezed out of the system if you … really integrated these hospital systems so they function much more as a system as opposed to as a random collection of hospitals.”

To read more, please hit this link.

 


Moody’s report sees relative stability at for-profit hospitals

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Moody’s Investor Services has released a report for the U.S. for-profit hospital sector showing that higher outpatient volumes are counterbalancing weak inpatient volume trends, small increases in reimbursement rates and rising costs, indicating something like stability.

Here are seven findings from the report, as summarized by Becker’s Hospital Review:

1. Moody’s analysts expect that aggregate same-facility EBITDA will grow 2.5- 3 percent over the next 12 to 18 months.

2. “Same-facility growth in inpatient admissions will average 0 to 1 percent as both commercial and government payers continue to shift volumes to lower-cost outpatient settings. Strong growth in outpatient surgeries will drive even more investment in ambulatory surgery centers.”

3. Increasing costs will squeeze hospital margins. Operators will continue to hire more physicians or acquire physician practices to drive referrals and manage population health. “However, these new salaried employees will add costs to the hospital, and physician group operations are typically not very profitable, leading to increased margin pressure.”

4. Bad debt will increase. “Moody’s analysts expect an uptick in bad debt expense as patients become more responsible for a larger portion of their healthcare costs, such as through high-deductible health plans.”

5. More value-based payment or alternative payment models will emerge. “CMS continues to implement more rigorous payment model changes, such as those that are mandatory as opposed to voluntary.”

6. Consolidation and divestitures will continue to influence capital allocation. “For-profit hospital operators will continue to rationalize their portfolios. They will only invest in operations in markets in which they are strong enough to ensure ongoing referral volumes and negotiate leverage with commercial payers.”

7. Novel investments will expand services. “Hospital operators will continue to look for new ways to invest in growth, including through joint ventures and clinical affiliations, as these arrangements require much lower capital outlays than acquisitions. ”

To read the entire Becker’s article, please hit this link.


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