Moody’s: Hospital margins will continue to soften in 2017

Expense growth at not-for-profit and public hospitals in 2016 surpassed revenue growth, according to a new analysis by Moody’s Investors Service. What’s worse? That trend is expected to continue into 2017. Read on to see why this is no cause for particular concern so long as the right attitudes toward costs and value-based reimbursement are adopted.

The Numbers

The analysis conducted by Moody’s looked at the national average, which is made up of local trends. Taken together, they show a significant reversal in profitability for FY 2016 versus FY 2015, which was considered a breakout year for hospital profits.

• Annual operating expenses rose from 6.2 percent in 2015 to 7.5 percent in 2016.
• Annual operating revenues dropped from 7.4 percent in 2015 to 6.6 percent in 2016.

Experts think this trend will continue in 2017. The question is, why?

Why Hospital Margins are Softening

Numerous cost structures are putting increased pressure on hospitals’ bottom lines. Moody’s attributed this phenomenon to several factors, including:

• Rising pharmaceutical costs
• Rising labor costs
• Reimbursement changes
• Uncertainty in state health insurance exchanges

In their report, financial services company Standard and Poor’s attributed the softening of hospital margins to a wide range of incremental pressures, including:

• Higher labor costs
• Expense pressures
• A reduction in the ACA’s Medicaid business,
• A reduction in patient volume following several years of ACA-driven growth

What to do about it

The outlook for hospitals is relatively positive, but proactivity is needed more now than ever. Some things that have improved since the 2008 recession remain solid. Among the areas of success are stronger balance sheets. Overall financial strength is good, in other words, but margins are decreasing. What not-for-profit hospital leaders have to realize is that they are living in a “new normal,” one in which lower margins are the reality. A heightened focus on costs and value-based reimbursement is needed.

All charges eligible for reimbursement must be submitted, every time. No money can be left on the table. MedCom Solutions can help you and your team do just that.

MedCom Solutions can help

MedCom Solutions is a state-of-the-art software and consulting firm that provides hospitals with unique Chargemaster, Pricing and Compliance solutions. We have yielded hundreds of millions in net revenue for healthcare providers. For more information, please visit our website.