Moody’s: For-profit hospitals’ outlook stable but value-based care investments are needed
Moody’s Investors Service maintained its stable outlook for the for-profit hospital industry, predicting some small growth in same-facility revenues and patient volumes while margins would remain flat. Looking ahead, however, it advises facilities to pay more attention to value-based care concepts and new technologies like telemedicine and artificial intelligence.
Aggregate same-facility EBITDA (earnings before interest, taxes, depreciation and amortization) is expected to grow by 2 to 3 percent over the next 12 to 18 months, according to Moody’s, with same-facility revenue growth forecast at between 2.7 and 3. 3 percent, close to 2017 levels. Hospitals will get a boost from the more severe flu season causing more patient admissions in the first half of 2018.
Patient volumes will increase around 1 percent, Moody’s estimates, a benefit for for-profits along with a “relatively stable” reimbursement and regulatory environment. Those favorable signs, however, will be offset by insurers trying to shift care to lower-cost settings and “aggressively managing utilization,” particularly in managed care programs for Medicaid and Medicare beneficiaries.
“We continue to hear from hospital companies that insurers are increasingly denying claims for managed Medicare and Medicaid populations or are refusing to pay at full, inpatient rates. Instead, insurers are more often coding inpatient stays as ‘observation days,' which are paid at lower rates than in-patient admissions,” the Moody’s report said. “This will also constrain volume and pricing growth for hospitals. Continued growth in high-deductible health insurance products will also constrain volumes as people forego elective care because of their increasing responsibility for co-pays and deductibles."
For-profit hospitals will likely continue to acquire, partner or invest in settings like ambulatory surgery centers and physician practices to capture some of the patient volume moving out of their hospitals, the report said. In turn, hospitals will have to offer more of the high-acuity services which can’t be moved to outpatient facilities, though this may involve investing in new technology and employing more physicians and specialists at a time when increased wages for staff is already driving up costs.
One solution may be to increase the use of telemedicine to both recapture some of the lost low-acuity patients while reducing facilities’ needs for highly-paid specialists at every location. Making investments now in technology like robotic surgery and artificial intelligence will benefit hospitals over the longer term.
These developing technologies are gaining significance for the sector, Moody’s said, as is the move towards value-based care. Analysts predict the transition “will accelerate in the coming years” based on the consolidation between insurers and providers (as seen in the proposed CVS Health-Aetna deal and Optum’s acquisitions in clinical care), which means more investments are needed to prepare for a value-based future for for-profit hospitals.
“The ability to invest in infrastructure and IT systems will be critical,” the report said. “Hospitals will need to properly capture and analyze vast amounts of patient data, quality measures and costs. They will need connectivity between their own systems, that of the payers as well as other unaffiliated post-acute or sub-acute care providers with which they are working. While there has been significant investment in recent years in electronic health records, we believe the vast majority of hospitals' IT systems do not have the full capabilities necessary to successfully operate in a pay-for-performance reimbursement system.”
John joined TriMed in 2016, focusing on healthcare policy and regulation. After graduating from Columbia College Chicago, he worked at FM News Chicago and Rivet News Radio, and worked on the state government and politics beat for the Illinois Radio Network. Outside of work, you may find him adding to his never-ending graphic novel collection.