Fitch: Implications of ACA Slowly Taking Shape for For-Profit Hospital
NEW YORK -- April 4, 2013
Link to Fitch Ratings' Report: Hospitals Credit Diagnosis (Implications of the
ACA Slowly Taking Shape)
Fitch Ratings believes the Affordable Care Act (ACA) will be a positive driver
of the hospital industry's operating outlook starting in 2014, but the
magnitude of its impact will depend on many current unknowns. These include
the structure of payments and contracts in the state health insurance
exchanges (HIEs) and the expansion of state Medicaid programs.
The details of these issues are slowly taking shape, and the industry
continues to be affected by the weak recovery in patient utilization and
federal deficit reduction measures in the meantime. After exhibiting a
worsening trend earlier in 2012, patient volumes in the for-profit hospital
sector did re-bound in Q4'12, leading to an improvement for the full year over
Same-hospital admissions dropped 1% on average for the Fitch-rated group in
2012, and adjusted admissions increased 1.5%, the strongest result since 2009.
Although volume growth has recovered relatively strongly in urban markets, it
has been disproportionately contributed by uninsured patients and those with
Medicaid coverage. This is causing weak pricing trends for some companies.
The health insurance expansion mandate of the ACA will provide a boost to the
industry's weak patient utilization trends in starting in 2014. However, given
the slow progress in the development of some of the key elements of the
legislation, it will be a transitional year. The benefits to the hospital
industry, including higher patient volumes and a lower level of uncompensated
care, will occur gradually.
More immediately, the sector is facing the sequestration of Medicare payments
starting April 1. This will essentially erase the roughly 2% boost in payments
hospitals experienced in Q4'12 through the annual Medicare market basket
update. Investor owned acute-care hospital companies derive about 30% of
revenues from Medicare patients, implying that sequestration is a headwind to
topline growth of less than 1% in 2013. While this will result in a drop in
profitability and cash flow unless offset by cost savings, the effect on
financial flexibility is nominal.
The full report, 'Hospitals' Credit Diagnosis,' is available at
Applicable Criteria and Related Research:
--'Fitch's High-Yield Healthcare Checkup', Jan. 30, 2013;
--'2013 Outlook: U.S. Healthcare', Nov. 29, 2012;
--'U.S. Leveraged Finance Spotlight Series - Community Health Systems, Inc.',
Oct. 1, 2012;
--'U.S. Leveraged Finance Spotlight Series - HCA, Inc.', Oct. 24, 2012;
--'Corporate Rating Methodology', Aug. 8, 2012;
--'For-Profit Hospital Insights: Fitch's Annual Review of Bad Debt Accounting
Policies and Practices', June 21, 2012;
--'For-Profit Hospital Insights: Electronic Health Record Incentive Payments',
March 7, 2012.
Applicable Criteria and Related Research
U.S. Leveraged Finance Spotlight Series: HCA Holdings, Inc.
Corporate Rating Methodology
For-Profit Hospital Insights: Fitch's Annual Review of Bad Debt Accounting
Policies and Practices
For-Profit Hospital Insights: Electronic Health Record Incentive Payments
High-Yield Healthcare Checkup: Comprehensive Analysis of High-Yield U.S.
2013 Outlook: U.S. Healthcare -- Navigating a Dynamic Operating and Regulatory
U.S. Leveraged Finance Spotlight Series Community Health Systems, Inc.
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Megan Neuburger, +1 212-908-0501
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Bob Kirby, CFA, +1 312-368-3147
Elizabeth Fogerty, +1 212-908-0526
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