UPDATE 1-Moody's keeps negative outlook for non-profit hospitals

Tue Jan 22, 2013 12:12pm EST

WASHINGTON Jan 22 (Reuters) - Moody's Investors Service said on Tuesday its outlook for U.S. not-for-profit hospitals will remain negative in 2013, marking the fifth year the rating agency has expressed concerns about the sector.

"Our sector outlook has been negative since 2008, reflecting the lasting impact of the recession on patient volumes, significant challenges facing the industry resulting from changes in how hospitals are paid, and heightened pressure from businesses and all levels of government to lower the cost of healthcare services," said Daniel Steingart, Moody's assistant vice president, in a statement.

Hospitals face slow revenue growth, possible federal cuts and limited reimbursements from insurers this year, the agency said. It added that "tepid economic growth and elevated unemployment will dampen demand for healthcare."

Moreover, the health insurance law known as "Obamacare" calls for more than $300 billion in reductions to Medicare payments through 2019, Moody's added. As the federal government begins tough negotiations to reduce its long-term debt and deficit it could continue to seek savings in Medicare payments, as well, it said.

One bright spot the ratings agency found was the management decisions made by hospital boards and staff to merge or affiliate their organizations, which has often improved operating performance.

"Operating margins and leverage metrics have not deteriorated in recent years, despite negative headwinds, because management teams have successfully managed expenses in light of weak patient volumes and less robust revenue growth," said Steingart.