Aug 16 The outlook for the U.S. not-for-profit
healthcare sector remains negative as new uncertainties over
Medicare and Medicaid funding and the potential for political
gridlock on healthcare reform could worsen the low growth in
revenue, Moody's Investors Service said in a report.
"The economic recovery will remain tepid, the transition to
new payment methodologies will require significant investment,
revenue growth will remain low by historical standards, and
reimbursement will remain under pressure from all sources,"
Moody's analyst Daniel Steingart wrote in the report, which was
published on Wednesday.
The report outlined three major risks facing the U.S.
not-for-profit healthcare sector. One is the pressure to acquire
physician practices and other providers, in order to remain
competitive, which may require raising capital.
The second risk is the increasing need to acquire or work
with insurers to transition from getting paid each time a
patient is treated to new reimbursement methods.
The third risk is the U.S. Supreme Court's decision on the
healthcare reform law that allows states to opt out of enrolling
more people under Medicaid.
"By limiting the expansion of Medicaid coverage, the ruling
blunts the impact of one of the law's few credit positive
features," Steingart said.
The unsustainable federal deficit and the rising costs of
both Medicaid, the health insurance program for the poor, and
Medicare, which covers the elderly, likely will lead to further
cuts in both programs, the analyst said. Medicaid and Medicare
on average insure about 50 percent of a hospital's patients.
Rising demand for healthcare from the aging baby boomer
population and the increased number of new people who will get
coverage under the U.S. healthcare reform law will help underpin
the sector, Moody's said.
"The single largest credit challenge facing the
not-for-profit healthcare industry is low revenue growth,"
But other parts of the new federal healthcare law will
pressure not-for-profit healthcare providers. The new law slows
the growth of Medicare spending, which makes it "a significant
long-term negative credit factor," Steingart said.
Fitch Ratings also weighed in on Thursday, saying that
investment-grade issuers in the sector exhibited solid financial
performance and improved debt service coverage in fiscal year
2011, but they also faced many challenges.
Credits rated below 'BBB' also suffered in 2011 from
declines in unrestricted cash and investments, operational
income and debt service coverage, Fitch said.
"Providers with size and scale are best positioned in the
changing landscape as they have the ability to generate
increased operating efficiencies and better resource
allocation," said Michael Burger, a Fitch director, in a
The difficulties facing sector were also highlighted in an
Aug. 13 report by Standard & Poor's Ratings Services. It said
non-profit healthcare providers faced a future of weak finances
and growing outside pressures, as a recent spurt of
improvements, including stronger balance sheets, begins to wane.