Fitch: Implications of ACA Slowly Taking Shape for For-Profit Hospital Industry

NEW YORK--()--Link to Fitch Ratings' Report: Hospitals Credit Diagnosis (Implications of the ACA Slowly Taking Shape)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=704315

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 2011.

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 'www.fitchratings.com'.

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.

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688959

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

For-Profit Hospital Insights: Fitch's Annual Review of Bad Debt Accounting Policies and Practices

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681330

For-Profit Hospital Insights: Electronic Health Record Incentive Payments

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=673291

High-Yield Healthcare Checkup: Comprehensive Analysis of High-Yield U.S. Healthcare Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=700377

2013 Outlook: U.S. Healthcare -- Navigating a Dynamic Operating and Regulatory Environment

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695570

U.S. Leveraged Finance Spotlight Series Community Health Systems, Inc.

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=687271

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Contacts

Fitch Ratings
Megan Neuburger, +1 212-908-0501
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Bob Kirby, CFA, +1 312-368-3147
Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Megan Neuburger, +1 212-908-0501
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Bob Kirby, CFA, +1 312-368-3147
Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com