Moody’s Projects Stability for NFP Healthcare Sector in 2016

Note: the editorial staff at iProtean will be taking a holiday break beginning next week and will return the first week in January. Happy Holidays!


The not-for-profit healthcare sector will be “stable” in 2016, according to the Moody’s Investor Service 2016 Outlook, released early this month. Moody’s analysts attribute stability to operating cash flow growth and reduction in bad debt.


Operating Cash Flow

The current strong growth in patient volumes and cash flow will return to normal levels, according to the analysts, because some of the factors driving recent strong performance such as gains in insurance coverage and strong patient volume growth, will not be repeated. Cash flow growth jumped to 12.3 percent in 2014, and growth through June 2015 remained strong at 10.5 percent. In 2016, cash flow growth will moderate to historical levels of 3 to 4 percent.


Bad Debt

Bad debt continues to fall, but at a slower rate than in the recent past. Large decreases in the uninsured rate during 2014 “have leveled out over the last few months as the Affordable Care Act (ACA) matures and there are smaller year-over-year gains to be made in insurance coverage.” States that expanded Medicaid have realized nearly all of the reduction in bad debt.


Moody’s notes that long-term risks remain:


Investments in population health management strategies could reduce margins. Hospitals will lose revenue unless they successfully enter into risk sharing contracts or make investments to capture volume in lower cost settings. Health policy experts believe that successful population health strategies will reduce inpatient utilization and lower costs. However, strategic investments, like physician practice acquisitions and insurance company start ups, are low margin businesses and can lead to large operating losses during the initial phase. In addition, investments in information technology and electronic health records will be costly.


Exposure to government insurance is growing. Factors include the expansion of Medicaid eligibility and an aging population resulting in an increase in Medicare enrollment. Government payers reimburse at rates lower than commercial insurance, and their rates typically are not subject to negotiation. This pressures hospital margins.


Health insurance markets continue to evolve. Consolidation among insurance companies “gives insurers greater leverage in negotiating payment rates with providers.” In addition to consolidation, the health exchanges continue to evolve and some are experiencing stress. Many major insurers reported losses on their exchange business, and many insurance co-ops failed in recent months.


Changes in patient behavior and regulation are on the horizon. Consumerism is changing how and where patients seek care by highlighting low-cost competition in the market. Additionally, significant political and regulatory challenges include changes to how Medicare reimburses for a variety of services, the imposition of the “Cadillac Tax” in 2018 which could reduce health insurance benefits for many commercially insured people, and the possibility of additional challenges to the ACA.


(Source: 2016 Outlook—Sector Stable: Lone-term Pressure Remains. Moody’s Investors Service, December 3, 2015.)


iProtean again thanks Moody’s Investors Service for allowing us to provide this information to our subscribers and to liberally quote from its Outlook.



iProtean subscribers, the advanced Finance course, Integrating Population Health Management into Your Strategic and Financial Plans, Part Two is in your library. This course continues the discussion by experts Marian Jennings, Mark Grube and Nathan Kaufman and covers whether population health management should be a priority for all hospitals/systems, transitioning and success indicators, risks and benefits of partnering for population health initiatives, and the population health hierarchy.



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