Physician employment a factor in negative projections for nonprofit hospitals

NEWS IN BRIEF — Posted Feb. 13, 2012

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The fiscal outlook for most nonprofit hospitals does not look good for 2012, and the growth in the number of physicians employed by these facilities is playing a significant role, according to a report issued Jan. 25 by Moody's Investors Service.

Moody's first downgraded the nonprofit health care industry from stable to negative in November 2008 in response to the recession and expected cuts to government programs. The latest report, U.S. Not-For-Profit Healthcare Outlook Remains Negative for 2012, maintained this evaluation because the economy is weak. Payment from Medicare, Medicaid and private third-party payers is expected to go down. In addition, Moody's wrote, hospitals are hiring more physicians.

"The short-term negative credit impact of ramping up physician employment can be significant because the main benefits of the strategy might only emerge over a longer period, while the costs are effectively immediate, possibly causing material stress on operations in 2012 and 2013," the authors wrote. "There are often high initial costs involved with new physician employment -- salary guarantees, physician integration or even practice acquisition."

Large integrated health systems are expected to fare better financially than small, free-standing facilities.

Note: This item originally appeared at

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