A preliminary report on the recent financial health of nonprofit hospitals delivers news that would be expected given the challenges faced by the industry overall: Expenses are rising faster than revenue.
But the numbers also hint that some progress is being made among hospitals in becoming more efficient, with expense growth moderating both last year and over the long term.
The report on median nonprofit hospital financial data from Moody’s Investors Service indicates that expenses grew 4.6 percent in fiscal 2013 as revenue grew 4.1 percent.
Obviously, that kind of difference is financially unsustainable over the long haul. It also is not surprising given the current industry circumstances, where movement away from both fee-for-service reimbursement and from acute inpatient care, among other trends, is creating financial difficulties.
"It’s actually not much different from what we expected. We have a negative outlook," said Jennifer Ewing, the Moody’s analyst who also was lead author of the report, "Profitability and Revenue Growth Drop in U.S. Not-for-Profit Hospital Preliminary Medians."
The Moody’s authors in the current report point to low rate increases from commercial payers, rate cuts from Medicare and Medicaid programs and increased use of high-deductible health plans as among the reasons why hospital financial performance is suffering.
But on the potentially brighter side, the rate of growth in expenses fell to its 4.6 percent growth in 2013 from the 5.5 percent growth in fiscal 2012. Ewing said that drop could be driven by such things as the increased provision of care in lower-cost ambulatory settings and cost-cutting.
And looking longer term, revenue and expense growth rates are both down from levels that were more than 9 percent in 2002. That’s a big drop.
Meanwhile, the implementation of the health insurance coverage provisions of the Affordable Care Act could have a positive effect in the numbers for this year. The added coverage among the uninsured could boost revenue, though the higher deductibles of much of that coverage may increase bad-debt expenses.
Expect similar gloominess when the final median fiscal 2013 financial results are released this summer, per Moody’s, but I’m going to go out on a limb and say the fiscal 2014 results may have some possible good news, that is, if things go well.