Medicare inpatient reimbursement rate cuts have directly affected hospitals' revenue in recent years, and now they're threatening to affect borrowing costs, too.
In August, after the Centers for Medicare & Medicaid Services announced that inpatient Medicare reimbursement in 2014 would climb by just 0.7 percent, Moody's Investors Service released a report that said the move is a "credit negative."
The reimbursement rate increase would have been 2.5 percent, based on the inflation-linked marketbasket benchmark used by Medicare, but CMS reduced it for various reasons, such as for health care reform-related cuts.
And with Medicare accounting for 44 percent of the revenue of Moody's rated not-for-profit hospitals, the cumulative effects of reduced Medicare reimbursement are starting to catch the attention of municipal bond analysts, according to a Moody's weekly credit outlook.
More affected are lower-rated systems and hospitals, with higher-rated counterparts doing OK, says Jennifer Ewing, a Moody's analyst who wrote the report. The inpatient reimbursement rate increase has lagged inflation in three of the last four years, and hospitals have been working hard to cut costs as a result, Ewing says.
Now it may get tougher. "The easy costs are out of the system and they're having to dig deep," Ewing says.
They've been feeling [the effects of] Medicare's underpayment for years and these changes are only going to make it worse," says Joanna Kim, vice president of payment policy for the American Hospital Association. "They're doing the best they can, but it's a real concern."
Profitability fell, according to a separate Moody's report, which found hospitals' median operating cash flow margin to have slipped in fiscal 2012 to 8.9 percent from 9.2 percent the previous two years. Hospitals' balance sheets remained relatively stable because of investment returns — the stock market did pretty well that year — and because of cash conservation tactics, says Lisa Goldstein, associate managing director for Moody's.
"Many hospitals have reported they've pulled back on spending," Goldstein says. Less money is going into bricks and mortar and renovations, and capital spending in general is getting cut, she said.