The latest round of sequester-related federal healthcare funding cuts last week does no favors for non-profit hospitals already facing a negative outlook from Moody's Investors Service. The anticipated cuts were already factored into the credit rating agency's projections, but the 2 percent slash to Medicare reimbursement is likely to feel a lot more real for hospitals now that the change has taken effect.
It remains to be seen how the automatic spending reductions will impact the larger economy, but Sarah Vennekotter, assistant vice president in Moody's not-for-profit healthcare division, shared a few outcomes likely to be experienced by hospitals with Medicare-heavy patient revenues — the hospitals that will feel the squeeze most.
Hospitals, already seeing the lowest growth in revenue in a decade, will feel that pressure continue and worsen, Ms. Vennekotter says. That will lead many to feel they need to "hunker down and focus on operations," rather than on capital projects, by seeking even more ways to reduce their cost of care as a means of maintaining their margins amid slowing revenue streams, she adds.
One place that cost-cutting could occur is in staffing, Ms. Vennekotter says, so hospitals and health systems may begin reducing their number of full-time equivalent employees to ease the burden payroll weighs on wounded income levels.
Hospitals have been hardy in facing cuts to Medicare and, in some states, Medicaid payments over the past several years, Ms. Vennekotter says, but the longer the trend continues, the greater the challenge for hospitals to stabilize their margins.
Although the Patient Protection and Affordable Care Act is likely to drastically reduce the number of uninsured individuals, which would result in less uncompensated care, Ms. Vennekotter says reimbursement for patients insured via the online health insurance exchanges is expected to be less than employer-sponsored group plans. Furthermore, Medicare disproportionate share payments and funding assistance for high levels of uncompensated care are being phased out. That delivers a double whammy to some providers, especially those in the retirement community-saturated areas of Florida, she says.
As for the for-profit hospital chains, Moody's current outlook for them is stable, attributable to their large size, smaller makeup of government-insured patients and uncompensated care and typically stronger margins. But, Ms. Vennekotter says, they face challenges of their own when federal healthcare funding is cut, and for-profit hospitals are often highly leveraged compared to their non-profit counterparts.
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It remains to be seen how the automatic spending reductions will impact the larger economy, but Sarah Vennekotter, assistant vice president in Moody's not-for-profit healthcare division, shared a few outcomes likely to be experienced by hospitals with Medicare-heavy patient revenues — the hospitals that will feel the squeeze most.
Hospitals, already seeing the lowest growth in revenue in a decade, will feel that pressure continue and worsen, Ms. Vennekotter says. That will lead many to feel they need to "hunker down and focus on operations," rather than on capital projects, by seeking even more ways to reduce their cost of care as a means of maintaining their margins amid slowing revenue streams, she adds.
One place that cost-cutting could occur is in staffing, Ms. Vennekotter says, so hospitals and health systems may begin reducing their number of full-time equivalent employees to ease the burden payroll weighs on wounded income levels.
Hospitals have been hardy in facing cuts to Medicare and, in some states, Medicaid payments over the past several years, Ms. Vennekotter says, but the longer the trend continues, the greater the challenge for hospitals to stabilize their margins.
Although the Patient Protection and Affordable Care Act is likely to drastically reduce the number of uninsured individuals, which would result in less uncompensated care, Ms. Vennekotter says reimbursement for patients insured via the online health insurance exchanges is expected to be less than employer-sponsored group plans. Furthermore, Medicare disproportionate share payments and funding assistance for high levels of uncompensated care are being phased out. That delivers a double whammy to some providers, especially those in the retirement community-saturated areas of Florida, she says.
As for the for-profit hospital chains, Moody's current outlook for them is stable, attributable to their large size, smaller makeup of government-insured patients and uncompensated care and typically stronger margins. But, Ms. Vennekotter says, they face challenges of their own when federal healthcare funding is cut, and for-profit hospitals are often highly leveraged compared to their non-profit counterparts.
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