The following hospital and health system rating and outlook changes and affirmations took place in June, beginning with the most recent.
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US For-profit Hospital Outlook Holds Stable
Moody’s foresees modest revenue growth, flat margins over the next 12 to 18 months; Profit margins will stabilize after a significant drop between 2015 and 2016.
The outlook for the for-profit hospital industry remains stable over the near term, with earnings expected to grow in the low-single digits over the next 12 to 18 months, while volume and pricing trends will continue to be modestly positive, Moody’s Investors Service says.
“Positive same-facility revenue growth and flat margins drive our stable outlook for the US for-profit hospital sector,” Moody’s Senior Vice President Jessica Gladstone said in a media release Thursday.
“Aggregate EBITDA will grow between 2.5% and 3.5% over the next year or so. Margins will hold steady as company-specific actions offset multiple industry challenges, including higher wage and benefits expense stemming from nursing shortages and increased physician employment.”
Gladstone says many companies’ margins will benefit as they integrate acquisitions and divest less-profitable hospitals and other facilities.
Moody’s projects patient volumes to increase 1% to 2% over the next 12 to 18 months, with declining unemployment and an aging population among the macro trends that will spur demand for healthcare.
However, structural shifts in payer programs that to reduce utilization and the cost of care by shifting patients to lower-cost settings will offset these positive trends, Moody’s says.
Higher private payer rates will be the main driver of revenue growth over Moody’s outlook period. Medicare rates for inpatient services will rise, though cuts to laboratory and outpatient reimbursement and reduced Medicaid disproportionate share hospital payments will constrain growth.
Hospitals will continue to employ specialist physicians and make capital improvements for more profitable procedures, contributing to pricing growth.
Political uncertainty doesn’t change long-term outlook for healthcare, Fitch says
Fitch Ratings said it maintains a stable outlook and sector rating for healthcare, even as the current political climate generates uncertainty.
The agency initially published its 2017 outlook for the industry last December, shortly after the 2016 presidential election. Since then, the agency said rating actions on healthcare companies have primarily been affirmations, and it believes the medium- to long-term fundamental outlook for healthcare is intact. Fitch analysts added the drivers of healthcare trends have not significantly changed.
“As the industry struggles to meet the cost burden of increasing healthcare demand, the long-term solution will require finding a balance between an individual’s access to healthcare and its affordability,” Megan Neuburger, managing director of U.S. Corporates at Fitch, said in a news release. “Without any concrete solutions currently on the table, near-term uncertainty may force providers to rethink aspects of their business, but this is unlikely to overhaul the industry’s broader dynamics.”
Fitch cites a number of issues it believes are current risks to healthcare, including repeal and replacement of the ACA, drug pricing, the shift from fee-for-service to value-based care and healthcare consumerism.
The GOP’s ACA replacement plan was pulled from the House floor last month. However, Fitch said HHS could still potentially cut funding for federal cost-sharing subsidies that help individuals purchase insurance coverage.
Additionally, Fitch said federal lawmakers have introduced legislation with the goal of lowering drug prices. “Policy objectives are aimed at addressing both drug manufacturers taking advantage of supply dislocations to increase prices on established products and hefty price tags for new, truly innovative therapies,” the agency said.
As far as the shift to value-based care, the agency believes “both political parties are philosophically aligned on the benefits of alternative payment models like the Medicare Comprehensive Joint Replacement bundle, so they are likely to continue in some form, although the role government will explicitly play is still up for debate.” And regarding healthcare consumerism, Fitch noted patients’ desire for price transparency will continue as they take on more financial responsibility for their care.
HENRY KOTULA 