Moody's report cites rising labor costs, shift to outpatient sites, more Medicare users

By Melanie Evans 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 24, 2018).

One important measure of U.S. hospital profits last year reached a low not seen in the past decade, as a tight labor market and other factors pressure hospital finances.

The median hospital operating cash flow margin -- monitored by Moody's Investors Service as a signal of financial strength -- fell to 8.1% last year from 9.5% a year earlier, in a preliminary analysis of 160 nonprofit and public hospitals and hospital systems with credit ratings from the agency, a Moody's report said.

That is the lowest level in the past decade, Moody's data show. The prior low point came in 2008, when the median margin reached 9.1%. That year, a deep recession sharply slowed growth in insurers' spending on hospital care. Job losses stripped households of private insurance coverage, and states' fiscal distress curbed Medicaid budgets, according to federal economists and statisticians.

Now, the metric's decline points to new challenges for U.S. hospitals as more patients seek medical care in nonhospital settings, and as enrollment surges in Medicare, which typically pays hospitals less than commercial insurers do. Those trends are squeezing hospital revenue, while a tight labor market is driving expenses higher, Moody's said.

Hospitals are the single largest expense in U.S. health care, and most are government-owned or nonprofit. For-profit hospitals, which account for roughly one-fifth of the sector, have experienced similar pressures as their nonprofit and public rivals.

"We've been waiting for this to happen," Lisa Bielamowicz, president of consultancy Gist Healthcare, said of hospitals' narrowing margins.

At the same time, gains to hospitals from the Affordable Care Act's 2014 health-insurance expansion "have been essentially realized," Moody's said. Hospitals will likely see more unpaid bills and uninsured patients after Congress included in December's tax overhaul a repeal of the ACA's individual insurance mandate, Moody's said

Hospital finances could face more pressure in the future if a wave of possible health-care deals, such as early stage talks between Walmart Inc. and insurer Humana Inc., creates new competition for hospitals.

Hospitals have responded with deals of their own, and some have invested heavily to expand into outpatient care.

The market shift toward outpatient care helped drag down last year's median operating cash flow margin, said Rita Sverdlik, a Moody's analyst who co-authored the new report.

Meanwhile, a nursing shortage has compounded an uptick in hospital operating expenses, whose growth has outpaced operating revenue for the second straight year in 2017, according to Moody's.

Hospitals in tight labor markets for nurses are offering bonuses to hire and retain nurses and relying on costly temporary nurse staffing agencies, said Lisa Goldstein, an analyst for Moody's who also authored the preliminary analysis.

Demand for nurses will intensify where the population is aging or booming, such as California, Florida and Texas, Moody's said in a separate report last month. Also likely to see increasing nursing shortages are U.S. communities hard-hit by opioid addiction and diabetes, which will increase demand for nurses, Moody's said.

Write to Melanie Evans at Melanie.Evans@wsj.com

 

(END) Dow Jones Newswires

April 24, 2018 02:47 ET (06:47 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
Humana (NYSE:HUM)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Humana Charts.
Humana (NYSE:HUM)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Humana Charts.