Operating margins improved for nonprofit hospitals last year, but it's not expected to last

The transition to value-based reimbursement models over the next few years will be particularly challenging to nonprofit hospitals, but you wouldn't know it from looking at last year's results.

A new forecast from Fitch Rating said that while the nonprofit hospital and health care sector showed improved overall performance in fiscal 2015,  it expects “operating performance to be more volatile in fiscal 2016 and beyond as the Centers for Medicare & Medicaid Services (CMS) further implements value-based reimbursement models and overall reimbursement rates compress.”

The median operating margin and operating EBITDA margin for nonprofit healthcare providers improved in fiscal 2015 to 3.5% and 10.3%, respectively, from 3.0% and 9.7% in the prior fiscal year. The credit rating agency said median operating profitability margins improved across all rating categories in fiscal 2015.

Fitch attributed the rise in operating margins to “improved cost efficiencies, higher numbers of patients with insurance coverage, and greater focus on revenue cycle improvement and fee collections.”

“The sector is also increasing both clinical and nonclinical efficiencies,” Fitch said. “Despite growth in the number of high-deductible health plans, management teams have become more adept at managing increased seasonality of patient volumes.”

How one hospital reduced denials during the transition to value-based care

Nonprofit healthcare providers will face greater operating performance challenges going forward, however, as “deferred pressures” from healthcare reform are felt, according to the credit rating firm.

 

“Operating performance is more likely to be challenged in 2016 and beyond due to labor and wage pressures for clinical staff, as well as the increasing need to employ and/or align clinicians to meet the requirements of population health management,” Fitch said. 

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