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Nonprofit, public healthcare medians eclipsed by rising expenses, Moody's says

Rising pension contributions, swelling labor and pharmaceutical costs are limiting cash flows.

Beth Jones Sanborn, Managing Editor

U.S. nonprofit and public healthcare medians "reversed trajectory" in 2016, according to a new Moody's Investors Service report, as annual expense growth outpaced annual revenue growth even in the face of increased volumes.

Moody's looked at audited fiscal 2016 financial statements for 323 freestanding hospitals, single-state health systems, and multi-state healthcare systems, representing 81 percent of all rated healthcare entities.

Despite prolonged cost containment, the report said annual expense growth of 7.2 percent overshadowed annual revenue growth of 6 percent, leading to a 4.5 percent shrinking in absolute operating cash flow. Rising pension contributions, swelling labor and pharmaceutical costs also inflated expenses.

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The result was a reverse from fiscal 2015 highs. Operating and operating cash flow margins' growth rates, in fact,  slowed by more than 24 percent and 10 percent, respectively.

While unrestricted cash and investments increased by 5.7 percent to $435.8 million in 2016, the growth rate has continued to decline since 2013 when the sector showed 11.2 percent growth in those areas, Moody's said.

Outpatient visits went up 4.5 percent and outpatient surgeries increased 3.5 percent, beating inpatient growth rates. Still, nearly all demand growth slowed.

The metrics also point to pension funding gaps that "stressed balance sheet and income statements," the report said.

"Higher expenses coupled with positive, albeit slower, revenue growth, contributed to lower profitability, tempered liquidity growth, and moderation of nearly all financial metrics," said Moody's Vice President Beth Wexler. "Tighter margins will weigh on the sector going forward."

Twitter: @BethJSanborn
Email the writer: beth.sandborn@himssmedia.com

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