Moody’s report on healthcare finance is misleading


By W. Stephen Love, President/CEO of the DFW Hospital Council

I don’t know if you have seen the article released yesterday by Modern Healthcare stating “Not-for-profit hospitals are stabilized by Medicare pay raise and DSH cut delays.” I was formerly a chief financial officer of a publicly traded company and can state first-hand investor services, stock analyists and financial engineers (many having never before worked in the industry) used to put out reports regarding future earnings and cash flow oftentimes creating issues for operators. I spent many hours educating investors about the true facts related to the healthcare industry.

The Moody’s report states “not-for-profit hospitals financial outlook has stabilized (predicting operating cash flow will grow) thanks to a significant pay raise from the Centers for Medicare & Medicaid Services (CMS) and the extended delay of the Medicaid disproportionate share cuts.” Of course, they do not define “significant.”

While CMS has looked at some reimbursement changes and we welcome the extended delay in Medicaid disproportionate share payment cuts, it’s problematic to declare victory and imply cash flows will increase and all is well financially. Many of you may get questions from state and federal legislators regarding this and my suggestions are:

• Yes, we are glad CMS is looking at reimbursement and we welcome delayed disproportionate share payment cuts.
• We also face many other barriers that could reduce margins, negatively impact cash flow and potentially affect access to treatment. Moody’s Investor Services did not cover these problems so a “cherry picking” approach is very misleading.
• Some serious challenges include looming legislation on transparency, balance billing, arbitration, benchmark rates and a slippery slope to price controls.
• The Affordable Care Act (ACA) lawsuit has not gone away and if upheld could have serious financial consequences for providers. We are still in discussions regarding 340-B payments and the ramifications could erode margins and cash flow.
• Pharmacy costs is still one of the fastest rising direct expenses that providers face.
• As Medicare for baby boomers increases, providers experience a shift from commercial payments to Medicare payments which erode margins and cash flow. Hospitals lose money on Medicare and are fortunate if they break even.

The article also hovered at a 50,000-foot level and did not even cover unique state issues such as renewal of Medicaid 1115 Waivers.

Moody’s Investor Services is a recognized and respected financial analytical firm. They have a great reputation in rating agency circles. However, they need to be careful when predicting future earnings and cash flow because there are many moving parts in healthcare subject to federal and state legislation.

My concern is our legislative leaders and the general public will potentially perceive providers are doing quite well and turn a deaf ear to real issues facing us today.