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6 Revenue Pressures Create Negative Outlook for NFP Hospitals

Rene Letourneau, for HealthLeaders Media, June 30, 2014

A ratings agency leader sounds the alarm for not-for-profit hospitals, saying they "have begun to lose the battle" and that a host of negative trends warrants a credit downgrade.

Last week at the Healthcare Financial Management Association's ANI conference in Las Vegas, Martin Arrick, managing director in the corporate and government ratings group at Standard & Poor's, spoke about the ratings agency's recent downgrade of the not-for-hospital sector's two-year credit outlook to negative, after being stable for years.

While NFP hospitals have done well in reducing costs over the past several years, they simply can't keep pace with the current array of financial challenges they are facing, Arrick says.

"My view is that the sector has done a phenomenal job keeping up with all the changes since the recession," he says. "Since 2008, the hospital CFOs that I know have really spent a lot of time trying to take control of what is going on within their organizations and have led the journey to cut costs and lower capital spending. They have been able to meet the challenges of a much tighter revenue environment. For the past few years things have been relatively stable even as the noise in the sector has gone up.

"Over the last year, though, a lot of not-for-profit organizations have begun to lose the battle. Essentially, it comes down to the idea that these organizations' ability to cut costs has been eclipsed by revenue pressures."

Arrick discussed six key areas that are creating a difficult credit environment for NFP hospitals.

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