New York, December 02, 2014 — The outlook for the US not-for-profit healthcare industry in 2015 remains negative as financial and business fundamentals will remain weak over the next 12 -18 months, says Moody’s Investors Service. Growth in operating cash flow will be weak, operating margins will continue to narrow, and revenue growth will remain limited, says Moody’s in “2015 Outlook- US Not-for-Profit Healthcare — Cash Flow Settling into Low Level of Growth Amid Negative Outlook.”

Moody’s projects revenue growth for the industry will be low, but steady, at 3.5%-4.5% over the next several years.

Moody’s is forecasting median operating cash flow growth will range from -0.5% to +1.5%. Moody’s expects the largest hospital systems—those with annual revenues above $2 billion — to achieve growth of 3% – 4%, while most hospitals with revenues under $1 billion will likely generate negative operating cash flow growth.

“The largest hospitals are getting stronger, while the smaller hospitals get weaker,” says Moody’s VP — Senior Analyst Daniel Steingart. “The largest hospitals have long generated stronger operating margins and revenue growth owing to factors such as their economies of scale and ability to drive revenue growth through expanded services.”

In all, Moody’s expects the operating cash flows of a majority of hospitals to decline year over year, but for cash flow for the industry in aggregate to grow slightly.

“The industry should settle into a period of very low, but stable growth that ultimately could lead us to change our outlook to stable,” says Moody’s Steingart.

Operating margins will weaken further in 2015, as hospitals run out of ways to protect their margins and grapple with operating under two very different reimbursement models—the traditional fee-for-service model versus emerging models that emphasize preventive care and avoiding hospital stays, such as those that are part of the Affordable Care Act (ACA).

To date the impact of the ACA on hospital financial performance has been uneven, with differences slowly emerging between states that expanded Medicaid eligibility under the ACA and those that did not.

In those states that expanded eligibility, the ACA’s primary impact has been to reduce the level of uncompensated care provided by hospitals and increase their Medicaid exposure. Moody’s notes bad debt has declined significantly among the states (including Washington DC) that expanded Medicaid, with median bad debt down 5.6% through 2014. For states that did not expand Medicaid eligibility, bad debt grew 6.8%.

For more information, Moody’s research subscribers can access this report at 

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1000220.