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Sequestration Cuts Threaten Not-For-Profit Hospitals: Moody’s

April 9, 2013
by John DeGaspari
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Another challenge to hospitals already facing limited revenue growth

The two-percent reduction in Medicare reimbursement rates mandated by federal sequestration over the next 10 years will make an already challenging operating environment for not-for-profit hospitals even more difficult, says Moody’s Investor Service in a new report.

“Many not-for-profit hospitals are already facing low revenue growth from both governmental and private insurance payers, and new Medicare cuts will exacerbate these problems, says Sarah Vennekotter, Moody’s assistant vice president and analyst who write the report, “The Sequester Series: Medicare Reductions Present New Headwinds for Not-For-Profit Hospitals.”

The Centers for Medicare and Medicaid Services (CMS) estimates the cuts will lower revenues of hospitals, physicians, and other healthcare providers by a total of $11 billion by 2013. The report notes that most vulnerable to those cuts are hospitals that have an outsize reliance on Medicare reimbursements, especially those that have not yet budgeted for the cuts or made commensurate adjustments to expenditures.

The report also notes that sequestration could have an indirect impact on hospitals through slowing economic growth, leading to admission declines and deterioration of the mix of payers as individuals lose their employer-based commercial insurance plans.

Moody’s also expects cuts to federal healthcare funding to persist after sequestration as federal debt reduction becomes a priority, which it says is an important consideration in its negative outlook for the not-for-profit healthcare sector.

According to Reuters, this is the fifth year that Moody’s has had a negative outlook for not-for-profit hospitals.

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