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For-profit hospitals have stable outlook, Moody's says

Last week, the ratings service downgraded the outlook for non-profit hospitals to negative.

Susan Morse, Senior Editor

For-profit hospitals in the United States will see growth of 2.5 to 3 percent in the coming year, driven by an increase in negotiated rates with insurers but offset by a drop in inpatient admissions, according to Moody's Investors Service.

The movement of patients to lower-cost outpatient settings, along with rising labor cost and other expenses and flat reimbursement from government payers such as Medicare and Medicaid, are also putting pressure on margins, Moody's said.

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Hospitals are expected to take efficiency actions to rein in cost, including consolidations.

Moody's Investors Service has given for-profit hospitals a stable outlook for 2018.

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Last week the ratings service downgraded the outlook for non-profit hospitals from stable to negative, due to lower reimbursement rates and rising expenses.

For-profit hospitals could see a change to negative should there be a decline in earnings.

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Any changes to the Affordable Care Act or Medicaid that leads to an increase in the uninsured population would lead to increases in bad debt, Moody's said.

The outlook of for-profit hospitals could switch to positive if earnings grow more than 4 percent.

As the demand for healthcare goes up, payers will focus on the cost-effectiveness of products and services, Moody's said.

Insurers will increasingly require patients to shoulder a greater burden of the cost of care.

HCA is the largest for-profit system by revenue. The system has a considerable presence in outpatient services and its cash performance outpaces its peers, Moody's said.

Community Health Systems has an ongoing divestiture plan and declining EBITA, or earnings before interest, taxes, depreciation and amortization, due to declining admissions, Moody's said.

Tenet Healthcare's combining with United Surgical Partners International earlier this year creates a network of surgical and imaging facilities including 90 urgent care facilities. This venture offers good long-term growth and offers a hedge against weak inpatient trends, Moody's said.

The outlook for global pharmaceuticals and the U.S. market for medical products and devices is stable, Moody's said.

Moody's expects earnings growth in the global pharmaceutical sector of 1-2 percent.

The oncology market will be the largest contributor to growth, while the aging population will continue to fuel a rising demand for treatment for complex diseases and prescription drugs.

Patent expirations on traditional products will be moderate and in general will be limited, while the market for biotech products will modestly erode due to the entry of biosimilars, Moody's said.

Generic drug prices will continue to fall as customers consolidate, while in the U.S. net prices on branded drugs will rise despite growing price pressures.

U.S. medical products and device makers will see EBITDA growth of 3 to 3.5 percent. This will come from new products and synergies resulting from large mergers and acquisitions, and an aging population, according to the report.

Value-based reimbursement approaches will pressure pricing.

In most countries, healthcare represents a rising proportion of gross domestic product, presenting plenty of growth opportunities for healthcare companies, but squeezing government budgets, the report said.

"Global demand for healthcare products and services will continue to rise in 2018 due to aging populations in mature markets and improving access to healthcare in emerging ones, as well as new products and technologies," said Michael Levesque, a Moody's senior vice president. "But increasing spending on healthcare will also create budgetary pressures, which in turn will drive cost-containment efforts and other political risks."

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