https://www.healthcaredive.com/news/nonprofit-hospitals-get-bump-in-moodys-ratings-for-2020/568739/

UPDATE: Dec. 11, 2019: Fitch Ratings also changed its sector outlook for the U.S. nonprofit health systems market to stable from negative for 2020 in a report released Tuesday.

Dive Brief:

• Next year should be kinder to nonprofit hospitals and health systems, with Moody’s Investors Service forecasting a 2% to 3% growth in operating cash flow next year, driven by stronger provider revenue due to Medicare and commercial reimbursement raises and growth in patient volumes.
• Moody’s revised its 2020 outlook for the not-for-profit provider sector from negative to stable as a result, and expects to see increased consolidation as hospitals bid to gain “negotiating leverage with commercial insurers, achieve savings through economies of scale, and ensure a foothold in emerging offerings such as urgent care and telemedicine,” analysts wrote.​
• That’s not to say health systems won’t continue to contend with sharp industry headwinds like rising labor costs and the aging population, along with uncertainty from up-in-the-air legislation, regulation and lawsuits.

Dive Insight:

High Medicare reimbursement rates should, along with slightly more favorable commercial reimbursements, drive sector revenue to jump 4% to 5%, Moody’s predicts. Medicare payment rates in 2020 are the most industry-friendly in a while, analysts say, at 3.1% for overall inpatient rates and 2.6% for outpatient.

Fitch Ratings, which also revised its sector outlook from negative to stable, noted balance sheet measures for the providers are now at levels not seen since before the Great Recession in 2007.

Expense management is also forecast to improve cash flow, though provider shortages will cause labor costs to grow.

A growth in the number of uninsured is projected to curb some of the gains expected under this positive forecast, however. The uninsured rate reached 13.7% at the end of 2018, ticking up from 12.2% in 2017 and a low of 10.6% in 2016, according to Gallup. Policy experts blame the elimination of the Affordable Care Act’s individual mandate, along with other Trump administration policies destabilizing the market.

Other regulatory waves could also impact hospital margins next year.

Cuts to Medicaid disproportionate share payments are likely to be postponed until late 2020 at least, which will help hospitals serving a large number of low-income patients. The $4 billion payment reduction was supposed to go into effect in 2014, but lawmakers have delayed the unpopular cuts annually since.

On Nov. 21, the Senate approved a continuing resolution to fund the federal government through Dec. 20. The CR once again pushed back the trims to the Medicaid payments.

A Trump administration policy requiring payers and providers to post secret negotiated rates online could help some hospitals and hurt others, with some health experts arguing it would stimulate competition through transparency and others warning it could cause prices across the board to rise.

Hospital lobbies filed a lawsuit Dec. 4 to stop the rule, arguing it violates the First Amendment and would put overly onerous administrative burdens on providers.

Cuts to the 340B Drug Discount program, meant to prop up hospitals with a large amount of uncompensated care, could also hurt the sector. The program generated an average savings of almost $12 million across all U.S. hospitals last year.

In May, a federal judge struck down planned HHS cuts to 340B, arguing the change was outside of the agency’s authority. However, CMS has said it plans to go through with the payment reductions in the final outpatient rule for 2020.

On the legislative side, the Republican state-led initiative to find the Affordable Care Act unconstitutional would shear an estimated 20 million Americans from coverage and raise premiums on millions more, hitting both hospitals and the consumer hard. ​

“The fate of the ACA will likely again rest with the Supreme Court,” Moody’s analysts said. “An adverse ruling there would have painful implications for hospitals if millions of individuals lose insurance,” and “coverage gains from Medicaid expansion would likely be lost.”