Nonprofit Hospital Expenses Grew Faster Than Income in 2013, Moody’s Says

Financial pressures on nonprofit hospitals continued in fiscal year (FY) 2013. Moody’s Investors Service released a preliminary report of the median revenue, expenses, debt, and operating margins of nonprofit hospitals and determined that the median rate of growth in revenue was 4.1 percent in FY 2013, while expenses grew at the rate of 4.6 percent. Both revenue and expenses grew more slowly in FY 2013 than in FY 2012. Operating margins dropped slightly.

Analysts noted that hospitals were making investments in health information technology (HIT) and physician alignment, so that the slowed rate of growth in expenses reflected the use of strategies to control costs, including shifts of services to less expensive settings. They attributed the decline in revenue growth to several causes: (1) rate reductions by government payers; (2) low rate increases by commercial payers; (3) an increasing use of high-deductible health plans, under which patients are responsible for more expenses; and (4) a shift from commercial payers to government payers.

The move to furnish some services in outpatient rather than inpatient settings also contributed to the decline in revenue growth because the hospitals are paid less for the outpatient procedures. In addition, the increased patient responsibility was likely to lead to both a drop in the demand for services and an increase in bad debt. The FY 2013 figures do not reflect the impact of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) because coverage did not begin until January 1, 2014.

Data Sources

The preliminary medians are based on the audited financial statements of 203 nonprofit hospitals, most of whose fiscal years ended by June 30, 2013, with a few that ended September 30. The final figures will be based on the entire database of 448 organizations, about 35 percent of which end their fiscal years between July 1 and September 30 each year. Moody’s expects to release the final medians in the summer of 2014.