NEW YORK--()--As consolidation in the healthcare industry continues its brisk pace, the U.S. Supreme Court Tuesday bolstered the Federal Trade Commission's (FTC) ability to obstruct hospital mergers. Fitch Ratings believes stricter anti-trust action is a negative for investor owned hospitals as these companies have recently been offsetting weak organic growth through hospital acquisitions. The ruling stems from a long-fought government campaign intent on preventing local monopolies to preserve competition in the marketplace.
A tougher stance by the FTC on hospital competition could have ramifications for commercial health insurance rates paid to hospitals. Simply put, less industry consolidation means decreased pricing power for hospitals. However, as most companies in the for-profit hospital sector continue to produce a solid amount of free cash flow, we continue to expect that companies will continue to actively acquire hospitals. As we previously stated, acquired revenue and EBITDA is helping to offset soft organic operating trends, and acquisitions clearly remain a priority for cash deployment.
Some provisions of the Affordable Care Act favor larger, integrated healthcare systems, like the Medicare payment reforms that include the Medicare Shared Savings Program. While this has been encouraging hospital industry consolidation, more stringent anti-trust pressure could dampen consolidation frequency.
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