Moody's Sees Affordable Care Act Pressuring Hospitals

Thursday, 28 Jun 2012 04:35 PM

 

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Moody's Investors Service on Thursday said the health-care reforms in the federal Affordable Care Act remain a credit negative for not-for-profit U.S. hospitals despite the positive effects of expanding insurance coverage for uninsured patients.

The U.S. Supreme Court upheld President Barack Obama's healthcare law on Thursday. The decision marked an election-year triumph for Obama and fellow Democrats and a stinging setback for Republican opponents of the most sweeping overhaul of the U.S. healthcare system in about a half century.

Moody's said this "should result in a material reduction in uncompensated care provided by not-for-profit hospitals."

However, over the next 10 years, the federal government will cut reimbursements to hospitals by more than $150 billion. A $14 billion cut is planned for one kind of aid for Medicaid, the health plan for the poor, elderly and disabled.

This pressure on reimbursements, which is heightened by the federal deficit, will not offset the benefits for the hospitals who start getting paid to treat patients who now lack insurance, Moody's said.

Both Standard & Poor's Ratings Services and Fitch Ratings analyzed the new law's impact differently. Fitch said it likely would benefit hospitals that now treat high numbers of uninsured patients.

S&P focused on a different aspect of the top court's decision, which found that Congress went too far in part of the law that requires states to expand the government's Medicaid program to many uninsured people.

"In our view, there is now a significant open question as to whether any specific state will pursue Medicaid expansion and, in some cases it may come down to a cost-benefit assessment of the fiscal implications," the credit agency said.

"The court's decision could lead to greater variability in state Medicaid program and cost structure, which we have regularly incorporated into our analysis," it added.

Bob Kirby, a Fitch director, said there will be no change in its ratings on healthcare issuers -- for-profit hospitals, not-for-profit hospitals, pharmaceutical companies, drug distributors, and device manufacturers - because they "already incorporate an expectation of full implementation of the Affordable Care Act."

However, the new law is expected to face continued challenges, and its future could hinge on which party comes out on top in the presidential and congressional elections.

"Focus now shifts to the outcome of the November 2012 elections, and we expect the Affordable Care Act will continue to face significant legislative challenges," he said.

Increasing health insurance coverage will raise the number of people who get care, and reduce the costs of caring for those who do not. This should have "positive implications for the healthcare industry's operating profile," he said.

But new fees, taxes, discounts, and Medicare reimbursement reductions and reforms will dampen these benefits.

"For most industry participants, it is unclear if the incremental revenue generated from increased utilization and lower levels of uncompensated care will offset the potential compression in margins," Kirby said.

© 2014 Thomson/Reuters. All rights reserved.

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