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Moody’s Investor Services Predicts Declining Hospital Revenue for 2014 brought on in large part by the ACA

We have been discussing for some time how the Affordable Care Act, or ACA will have a dramatic impact on hospital revenue.  A recent report by Moody’s Investor Services points out that the non-profit hospital sector will be hit particularly hard by recent changes brought about by the ACA.  While this news is not new, the anticipated impact on the non-profit hospital sector is more dire than previously anticipated.  Full findings as authored by Daniel Steignert, the Moody’s Assistance Vice President and Financial Analyst in the report “2014 Outlook – US Not for Profit Hospitals” have many organizations concerned about ramifications not only on the business side of healthcare, but on the humanitarian side as not-for-profit agencies facing ever tightening restrictions, regulations, and reimbursement cuts may face closure without aggressive action.

One of the historic reasons that hospital revenue declines have been predicted was the growth rate of hospitals.  For more than 10 years the not for profit hospital sector has been growing faster than the revenues for this sector.  With growth outpacing reimbursement, many of these facilities relied heavily on subsidies from the government to maintain operations and provide reimbursement for care for the non-insured sector as a type of payment safety net.  This reimbursement is now facing steep cuts in the face of ACA implementation, though it is still up in the air as to what the rate of services provided to uninsured will be in the future.  As many following the ACA impact are aware, there remains a large gap in healthcare coverage across the country, and enrollment numbers for previously uninsured individuals have been far less than originally anticipated.  With the mandatory deadline to sign up for coverage fast approaching at the end of this week.  Several agencies have predicted a remaining coverage gap due to lack of knowledge, inability to navigate the system, or cost of care.  For states which opted out of Medicaid expansion, the coverage gap will remain the greatest.

As outlined in the report, Mr. Steiger outlined the following predictions:

  • not for profit hospitals face a challenging landscape over the next 12 to 18 months as patient volumes shrink and revenue growth slows
  • the pace of hospital revenue will continue to decline.
  • the sector will face weakening business conditions and contracting margins as not for profit hospitals adjust to changing dynamics brought on by the ACA and insurance companies, employers and other industry participants seeking to control healthcare costs

“Specifically, Moody’s expects median revenue growth to fall to a range of 3% to 3.5% in fiscal year 2013, which is much lower than fiscal year 2012’s growth rate of 5.2%. Moody’s expects revenue growth in 2014 to also remain low.”

Other factors were cited as contributing to declining hospital revenue including:

  • 1.3% medicare payment reductions
  • reduction in DSH payments which began in Oct. 2013 (payments which used to cover the hospitals costs for care which was not reimbursed due to coverage gaps)
  • Declining volumes in inpatient services, with the shift to outpatient settings where reimbursement is lower
  • commercial rate increases to be in the 0%-5% range

As Hospital Revenue Declines, Expenses are Predicted to Increase

Along with the ACA there have been several other initiatives which will require a large investment for hospitals.  These include implementation of EMR/EHRs, new regulations regarding transparency and pricing, and ICD-10 coding updates.  The IT Infrastructure of organizations is undergoing a phase of heavy development, all at a time when hospital revenue is declining.  Add to this the fact that insurance enrollment information is pointing to uneven coverage, and you end up with revenue cycles which are difficult to predict, drops in reimbursement, and increased costs of required investments to remain compliant with regulations and you have a recipe for financial alarm when it comes to the hospital revenue cycle. Finally, “Moody’s estimates most insurance sold on the exchanges will reimburse hospitals at rates 20%-30% lower than existing commercial rates.”

“There are many unknown variables that make budgeting and strategic planning especially difficult over the near term, including how many people will gain insurance coverage through the public exchanges or with what frequency they will access healthcare services,” says Steingart.

Moody’s says it is unclear at this time to what extent initial technology problems with the federal exchanges will reduce overall enrollment.

 What Smart Organizations Need to Do

This is truly going to be a time when the survival of healthcare organizations is heavily dependent upon planning and strategy.  Each organization should be conducting an in depth analysis of how recent changes, across multiple areas, will impact their organization from a revenue standpoint.  The ACA and other recent changes in the industry do not necessarily spell financial doom for organizations, but those who are not prepared will face a tough road ahead.  At our firm we have began to work with organizations to assist them in balancing out revenue streams, generating patient-centric service options which are more in line with the emphasis on high quality care delivered efficiently, and examining their payer mix.  There are successful strategies which can be put in place to mitigate the financial impact of the ACA and tightening margins, but they take an immediate and proactive approach.

Find out how your hospital revenue can remain intact in these challenging healthcare times by calling 1-888-831-1171 today for a free consultation.  Examine our portfolio to see what firms we have worked with, or take a look at our case studies which show the positive revenue impact we have had on healthcare organizations, or simply click below for a custom proposal and free one hour consultation to see how BHM can help you drive hospital revenue in a changing healthcare atmosphere.