Both major financial ratings services are forecasting a negative outlook for non-profit hospitals in 2010, due to factors such as high debt loads, high numbers of uncovered patients and lower government reimbursements, according to a report by the Healthcare Financial Management Association.
Moody's Investors Service expects continued sluggish patient volumes and pressure on all hospital revenue streams in its "Annual Sector Outlook for Not-for-Profit Healthcare for 2010."
"These economic effects constitute a common thread underlying many pressures on not-for-profit hospitals," Moody's said in the report.
Fitch Ratings expects rating downgrades to moderately outpace upgrades in 2010 as non-profits face continued difficulties over the next few years, according to its "2010 Nonprofit Hospitals and Health Systems Outlook.
Moody's and Fitch generally agreed on a wide range of negative factors:
- High unemployment, meaning fewer people will be covered by employer-based insurance. Also, federally required COBRA coverage for the newly laid-off is starting to run out.
- Continued consumer pessimism. Fewer people are seeking out care, especially those with high deductibles.
- Unprecedented federal and state budget deficits. Moody's projects a decline in Medicare spending to offset federal budget deficits.
- Increasing difficulty cutting more costs, after the deep cost-cutting last year, as well as difficulty sustaining last year's cuts.
- Scheduled conclusion of federal stimulus funding in Dec. 2010. However, Pres. Obama's budget calls for a six-month extension of the enhanced federal Medicaid match, through June 2011.
- High debt loads. Moody's points to risks for debt structure and liquidity.
- High capital needs, including projects that were delayed last year.
On a positive note, Moody's said hospitals will benefit from strong management capabilities, a partial recovery of equity and debt markets and an expected increase in mergers and acquisitions.
Fitch said payor methodologies will continue to favor hospitals that deliver measurably effective and efficient services.
Read HFMA's report on non-profit hospital outlook.