US not-for-profit and public healthcare outlook stable for 2016


The outlook for the US not-for-profit and public healthcare sector in 2016 is stable amid expectations that operating cash flow growth and patient volume will moderate.

This is according to Moody's Investors Service writing in a report called "US Not-for-Profit and Public Healthcare: 2016 Outlook - Sector Stable; Long-term Pressure Remains." Moody's changed the sector's outlook to stable from negative in August.

"Hospital cash flow growth is strong following years of lower trending although we expect it to moderate to historical levels of 3%-4%. Some of the recent drivers, such as gains in insurance coverage and volume increases, will not be sustained over the next 12-18 months," said Daniel Steingart, a Moody's VP senior analyst.

The 2016 outlook, which reflects Moody's expectations for the fundamental business conditions in the sector over the next 12 to 18 months, also reports that changes driven by Medicaid expansion, a cornerstone of the Affordable Care Act, (ACA) are stabilizing.

The reduction in bad debt, or unpaid patient bills, is most dramatic in states which expanded Medicaid although hospitals in non-expansion states are showing some reductions as well.

Similar to cash flow growth, Moody's expects volumes to moderate in 2016 although remain above post-recession years. The 2015 spike was due to gains in insurance coverage and prior deferrals of elective services. Hospitals are also seeing growing numbers of outpatient volumes due to regulatory payor changes and advances in medical technology.

However, the sector faces longer term pressures. Among these risks are investments in population health strategies which may suppress revenue and pressure margins. Also, as more individuals gaining healthcare coverage through Medicaid expansion and the aging of the population, exposure to government payors will increase and result in margin contraction.

Moreover, the industry continues to evolve as proposed consolidation among larger insurers may negate hospital negotiating leverage. Further, some of the co-operatives offering health exchange products are experiencing stress and closing.

Moody's Investors Service, Europe, US