Hospital profitability sinks to levels not seen since the financial crisis: Moody’s

  • The nation's hospitals last year found themselves more cash-strapped than at any time since the 2008 financial crisis, a Moody's Investors Service report says.
  • The outlook is not expected to get any better over the next year.
A Registered Nurse hangs an I.V. bag for a patient at the University of Miami Hospital's Emergency Department in Miami, Florida.
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The nation's hospitals last year found themselves more cash-strapped than at any time since the 2008 financial crisis and the outlook is not expected to get any better over the next year, according to new preliminary data from Moody's Investors Service.

At not-for-profit and public hospitals, median operating cash-flow margins, a key measure of profitability, dropped to 8.1 percent in 2017 from 9.5 percent in 2016, Moody's said. Expense growth outpaced revenue growth for the second consecutive year.

High labor costs and lower reimbursement from commercial and federal payers are among the factors behind the squeeze.

"We're in a nursing shortage in the United States. In some markets, it is more acute than others," said Rita Sverdlik, an analyst at Moody's who co-authored the report, which looked at 160 nonprofit and public hospitals and hospital systems.

Sverdlik said contract or temporary labor from nursing staff agencies can be very expensive for hospitals. She added hospitals across the country are offering signing bonuses to retain or hire new nurses on top of the usual payroll, benefits, employee pensions and health insurance.

Gains for hospitals from health care insurance expansion and exchanges under the Affordable Care Act, also known as Obamacare, "have been essentially realized," she said, meaning that "people had health insurance, were seeking care and now that's starting to taper off."

The aging American population and growing debt problems are also cited by Moody's as factors pressuring hospital systems.

Meanwhile, a potential merger between Walmart and Medicare insurance giant Humana represents a new threat to hospitals' bottom lines. Walmart has pharmacies in most of its 5,000 stores and Sam's Club brands, and in-store clinics in Georgia, South Carolina and Texas. An expanded partnership or merger with Humana catering to Medicare patients could help the retailer become a major provider of primary care.

Moody's said new strategies to stimulate revenue growth "will be integral as hospitals and health systems exhaust cost reduction efforts."

Strategies currently being employed by hospitals include starting new ambulatory clinics or urgent care centers. "We're hearing and seeing hospitals going full press on the ambulatory side," Sverdlik told CNBC. Emergency centers provide "slower reimbursement but generally lower cost."

— CNBC's Bertha Coombs contributed to this report.