Moody's: 2 Percent Medicare Cut Translates to 6 Percent off Hospital Margins

The sequester 2 percent cut on Medicare reimbursements will take 6 percent off the margins of for-profit hospitals, Moody’s Investors Service experts predict.

In a report released Monday, Moody’s unveiled a bleak outlook for for-profit hospitals. This comes on the heels of a similarly gloomy forecast for not-for-profit hospitals released in January.

“Tepid economic growth and elevated unemployment will dampen demand for healthcare,” Moody’s predicted. For not-for-profits, the news has been bad since the beginning of the recession in 2007. “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 Moody’s analyst Daniel Steingart.

The projections regarding for-profit hospitals is not so dire, as the investors service predicts “modest earnings growth” over the next 12-18 months. “But earnings growth will be at the low end of the range for a stable outlook, given the many headwinds facing the sector,” according to a Moody’s press release.

“Weak admissions, a decline in the number of patients with high-paying commercial insurance and increasing bad debt expense are all currently constraining earnings,” said Moody’s Vice President Dean Diaz.

“Weak patient volumes will continue through 2013,” Diaz predicts, until the Patient Protection and Affordable Care Act provisions will kick in and widen health insurance coverage beginning in 2014.

“Potential budget cuts to Medicare spending remain a wild card for US for-profit hospitals,” Moody’s projects. If the 2 percent sequester cut holds, growth will be limited. “The hospital industry is already facing more than $300 billion in reductions to Medicare payments through 2019 as part of healthcare reform,” Moody’s says.