EBITDA to flounder at hospitals until 2014

For-profit hospitals face anemic earnings growth for the rest of 2013, but things look up for next year, according to a report from Moody’s Investors Service.

Factors at play: "Weak admissions, a decline in the number of patients with high-paying commercial insurance and increasing bad debt expense are all currently constraining earnings,” said Dean Diaz, vice president, senior credit officer, in an announcement.

The 2% Medicare cut included in the sequester is also causing earnings pressure, which would get worse if the cut remains in place. Margin pressure is also coming from hospitals employing more physicians and acquiring physician practices and small, struggling hospitals. As a result of all this, Moody’s expects “same facility aggregate EBITDA to rise by around 0.0% to 0.5% in the next year or so."

Brighter days: The expansion of health insurance coverage under healthcare reform should trigger a return to modest EBITDA growth beginning next year, Diaz says. Costs of uncompensated care should decline as the number of insured individuals increases.

In the meantime, hospitals will stay focused on controlling costs to maintain their battered margins.