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Moody's: Hospital expenses outpace revenues for first time in 3 years

August 23, 2013

Expenses grew faster than revenues for not-for-profit hospitals in fiscal year 2012, according to a report released today by Moody's Investors Service, a situation the credit rating agency calls “unsustainable.” Expenses grew by a median 5.5% for 402 hospitals and health systems rated by the agency, while median operating revenues grew just 5.2%. Moody’s expects operating performance for the sector to remain weak. “We expect revenue growth will remain pressured in FY 2014 following the Centers for Medicare & Medicaid Services’ final ruling that hospitals will receive a slim 0.7% net increase on inpatient reimbursement rates in federal FY 2014,” writes Deepa Patel, Moody's assistant vice president/analyst. “The continued sequestration and Medicare disproportionate share reductions that begin on Oct. 1, 2013 will also hamper performance. Further, many hospitals report that rate increases from commercial payers are lower than historical levels.…Most management teams will respond aggressively with expense growth containment strategies to combat limited revenue growth. However, it will be difficult to make swift expense reductions since many cost savings measures have been exhausted following the recession.”