September 3, 2014—Nonprofit hospital expenses outpaced revenues for the second straight year in 2013, forcing their median operating margin down to 2.0 percent, the lowest it’s been since the 2008-09 recession, according to a report released by Moody’s Investor Service. [ms-protect-content id=”2799″]
Nonprofit hospital revenue grew by an all-time low of 3.9 percent, while expenses grew by 4.3 percent—”an unsustainable trend,” Moody’s said.
These hospitals can expect more of the same in the coming year. “We expect revenue growth will remain under pressure in 2014,” said Moody’s analyst Jennifer Ewing. Moody’s said the Affordable Care Act’s individual mandate and Medicaid expansion will have “minimal impact” on nonprofit hospitals’ 2014 margins. They “may mitigate some of the slowdown in revenue growth, although likely not … until 2015,” the credit rating agency said.
In a section of the report on factors that challenge revenue growth, Moody’s said “an increase in high-deductible health plans, with higher levels of patient responsibility, contributes to increases in bad debt and lower demand for healthcare services.”
“We expect these plans to become more prevalent as more individuals purchase insurance through healthcare exchanges in 2014 and as employers shift healthcare costs to employees,” it said.
Moody’s Aug. 27 report is the second in recent weeks to highlight nonprofit hospitals’ mounting financial challenges. Standard & Poor’s Ratings Services reported in early August that nonprofit hospital operating expenses exceeded income in 2013.
Nonprofit hospitals that serve a high volume of low-income patients and that have contracts with a state or local government to care for patients who do not qualify for Medicare or Medicaid are eligible for 340B drug discounts. Drug manufacturers suggest that the vast majority of these hospitals do not provide enough charity care to warrant remaining in 340B. [/ms-protect-content]