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​The Healthcare Turnaround

Other nonprofit sectors can reap the same benefits as hospitals by following smart business practices in managing expenses on the labor and supply sides, as well as by taking advantage of the improving employment rate.

After several years of negative ratings from Moody’s Investors Service, hospitals have been upgraded to “stable” status for the first time since 2008. Two major reasons for the sound financial status is an increase in patient volume and a decrease in bad debt — both of which have led to improved operating cash flow.

The states seeing the most improvement are those that have expanded Medicaid eligibility. These hospitals list only 3.8 percent of their patients as self-paying, while states that have not expanded Medicaid eligibility have 9.2 percent of patients listed as self-paying.

In late 2014, hospitals saw a big escalation in admissions after several years of a flat or declining trend. The reasons for the uptick in patient stays included a particularly tough flu season, demand for health services from the newly insured, and a stronger employment outlook. Managing labor and supply expenses have also factored into the increase.

Operating cash flow for hospitals is at the highest it’s been in years, with a boost in cash flow of 12.3 percent in 2014. The first quarter of 2015 saw an increase and is paving the way for a trend that Moody’s predicts will continue for at least 12 to 18 months.

Moody’s does, however, offer cautionary advice. Hospitals are investing in population health management and spending large amounts of capital. Healthcare providers are also seeing an increase in competitors entering the market such as “minute clinics” in drugstores and other retail locations. The cost and convenience of these pop-up locations for consumers can cut into free-standing hospital profits. Additionally, hospitals are more tied to government insurers. With the increase in revenue from Medicaid, commercial health plans saw revenue decline about five percent since 2009. Medicare will continue to increase as the baby boomer generation ages.

To learn more about Moody’s ratings, visit the Modern Healthcare website and read “Outlook for Not-for-Profit Hospitals Gets First Upgrade Since 2008” here.

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