Financial Outlook for Non-Profit Healthcare Firms…

…is poor according to Moody’s.

“By limiting the expansion of insurance coverage, the ruling blunts the impact of one of the law’s few credit positive features. Uncertainty regarding which states will and will not participate in the Medicaid expansion adds to the political gridlock regarding healthcare reform, making it increasingly difficult for hospitals to perform adequate long-term planning.”

“The established risks facing the industry primarily result from lower reimbursement levels that will come to fruition, with or without federal healthcare reform, and are driven by the unsustainable federal deficit and the rising share of federal spending for Medicare and Medicaid,” said Moody’s AVP-Analyst Daniel Steingart, author of the report, which also highlights several developing risks that contribute to the negative outlook, last updated in January.

What are the primary risks to the not-for-profit healthcare sector?  Moody’s lists the following six:

1. Low Revenue Growth. As CMS reduces reimbursement rates, providers will need to grow market share to increase revenue.  This may be difficult.
2. Challenges from transition to new payment methodologies.  As CMS and other insurers adopt value-based purchasing systems based on quality of care and care coordination across provider settings, reimbursement is likely to be more variables from year to year.
3. Sluggish Economic Recovery.  A poor economy not only affects patient demand (due to decreases in demand for more elective procedures and increases in the number of uninsured individuals), but also poor stock market returns can  affect hospital’s return on their investments.  “Payer mix across our entire rated portfolio has worsened in each of the last three years with median Medicaid exposure in FY 2011 growing to 13.0% of gross revenue from 11.0% in FY 2007 and exposure to self-pay or uninsured growing to 7.9% from 7.5%”
4. Supreme Court ruling allows states to opt out of Medicaid expansion. This means that insurers that specialize in Medicaid (like Coventry, Aetna’s newest acquisition) may not have as much growth potential as originally anticipated.
5. Hospital-Insurer collaboration. Hospitals are increasingly acquiring or collaborating with insurers to gain experience with value based and other at-risk reimbursement methodologies.
6. Increasing centralization of care. Hospitals are acquiring physician practice in order adapt to a word of Accountable Care Organizations (ACOs), bundled payments, and care coordination.