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Moody's data shows expenses continue to outpace revenue for nonprofit hospitals

Fueling the trend are lower reimbursement rates, a shift to outpatient care and growing merger and acquisition activity.

Beth Jones Sanborn, Managing Editor

For the second year running, expenses have surpassed revenues for nonprofit and public hospitals, creating instability and further pressuring hospital margins, according to the fiscal 2017 sector medians from Moody's Investors Service.

"Revenue pressures continue to overshadow expense saving initiatives," according to Moody's Analyst Rita Sverdlik. "While the median annual expense growth rate decelerated to 5.7 percent from 7.1 percent, annual revenue growth rate declined faster, to 4.6 percent from 6.1 percent."

Fueling the trend are lower reimbursement rates, shift to outpatient care, growing merger and acquisition activity, and rising ambulatory competition. The drop in expense rate was due largely to better control of labor and supply costs, Moody's said.

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Moody's data also showed a spike in operating deficits for hospitals and lower absolute operating cash flow in 2017, with 28.4 percent of hospitals reporting operating losses up from 16.5 percent in 2016. The number of providers reporting lower absolute operating cash flow more than doubled from 24 percent in 2015 to 59 percent, a five-year high.

The investor service said that nonprofit hospital margins will continue to feel the crunch through 2018, as median margins fell to a record low of 1.6 percent operating and 8.1 percent of operating cash flow. 

There was some positive news however in that the median unrestricted cash and investments growth rate rose to  8.9 percent thanks to strong market returns and steady capital spending. Absolute cash growth outpaced expense growth boosting median cash on hand to 209.9 days.

"This trend will not continue if more cash flow is spent on capital or equity markets fall," Moody's cautioned.

As patient care trends shift more towards less costly care environments, median outpatient growth rates were greater than inpatient growth rates for the fifth straight year. This shift is not all that surprising as consumers shoulder more of their healthcare costs through high-deductible health plans and are therefore looking for quality healthcare but at a lower cost. 

Venue can play a role in that. Also, the overall cost of care for outpatient facilities is less than inpatient care, so the shift also could contribute to a downward turn in overall healthcare spending.

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