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Moody’s: Large and Small Hospitals Showed Revenue Growth in 2015

The 2015 medians showed that the largest 50 and smallest 50 hospitals and healthcare systems, measured by total revenues, experienced similar financial trends of improving revenue growth and stable-to-improving financial performance, according to a report on medians issued by Moody’s Investors Service in early September.


In the last two newsletters we highlighted key findings from Moody’s Investors Service reports on the 2015 medians. Part 1 focused on revenue growth to levels not seen since fiscal year (FY) 2008. Part 2 noted that continued M&A, strategic partnerships and other consolidation activity contributed to high revenue growth for hospitals in the Aa category.


In today’s post, we highlight Moody’s final 2015 medians report. Its analysts noted that financial performance, as measured by operating cash flow margin, was higher at the smallest 50 hospitals because of “nimble operations and the absence of higher cost subsidiary operations (e.g., health plans and large physician groups). But the size, scale and geographic diversification of the largest 50 systems will result in greater efficiencies over time.” (Medians – Revenue Grows for Largest and Smallest Hospitals, Capital Spending Diverges, Moody’s Investors Service Sector-In-Depth, September 8, 2016)


Key points noted by the analysts include:


Revenue growth was positive for both the largest 50 and the smallest 50 hospitals and health systems, but the compound annual growth did differ.


  • Compound annual growth rate for the largest 50 hospitals/health systems was 9 percent because of consolidation activities, increased efficiencies, diversification strategies, volume growth and negotiating leverage.
  • Compound annual growth rate for the smallest 50 hospitals was 3.8 percent.


Capital spending differed between the two groups.


  • For the smallest hospitals, capital spending remained below depreciation at 0.9 times.
  • The largest hospitals/systems continued to spend above depreciation at 1.3 times.
  • Balance sheet resources and access to the debt markets varied widely for both groups.
  • Moody’s analysts noted,” Irrespective of size, we expect much of future capital spending to focus on IT leading to a rise in average age of plant.”


Days cash on hand remained stronger among the smallest 50 hospitals.


  • Days cash on hand remained flat for both groups. But the smallest hospitals had a stronger 239 days cash on hand compared to 203 days for the largest hospitals/systems.


Operating performance continued to improve among the smallest 50 hospitals and health systems.


  • Operating margin and operating cash flow margin grew to 2.3 percent and 10.3 percent respectively. Small hospitals’ efforts to reduce cost and volume growth drove improved performance, as did increased Medicaid expansion and better forecasting of supplemental funding.
  • Operating performance among the largest systems remained stable.


(iProtean, now part of Veralon extends its appreciation to Moody’s Investors Service for giving us permission to quote liberally from its reports.)



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