Fitch: For-Profit Hospitals Potentially Benefit from Early ACA

NEW YORK--()--Secular headwinds to patient volumes continued to depress growth in the for-profit hospital sector in 1Q14, according to Fitch Ratings. The Fitch-rated group of companies reported a drop in same-hospital admissions and adjusted admissions of 3.6% and 1.4%, respectively, during the period. Although certain operating challenges remain intact, Fitch thinks that a mild sequential improvement in organic volume growth is likely when companies report 2Q14 results since severe weather and weak seasonal flu activity were factors early in the year.

The implementation of the health insurance expansion elements of the Affordable Care Act (ACA), including expanded Medicaid eligibility in some states and the opening of the public health insurance exchanges, did little to boost patient volumes in 1Q14. This was not unexpected since enrollment in these programs continued to ramp throughout the period. The effect will be more obvious in 2Q14 since hospital companies did report seeing an increase in the number of exchange enrollees towards the end of the open enrollment period.

Relative to the early muted influence of insurance expansion on volume growth, expansion of state Medicaid programs had an immediate and dramatic influence on payor mix. In expansion states, hospitals are experiencing strong growth in Medicaid patient volumes and a drop in uninsured patient volumes. Based on only one-quarter of experience under insurance expansion, it is difficult to determine the longer term effect of the payor mix shift, but these early results show the industry could experience a meaningful and durable reduction in the financial headwind created by uncompensated care.

About one-half of states have so far opted into Medicaid expansion. Florida, Texas, and Pennsylvania are the three states that have not opted in that would have provided the biggest upside to the industry. Despite political hurdles, Fitch believes more states will join the expansion in the near term. The financial incentive is likely to prove hard to ignore as is the federal government's flexibility in granting waivers for states to adopt creative solutions to expansion programs.

The full report, "Hospitals' Credit Diagnosis: Promising Early Experience under Affordable Care Act," is available at www.fitchratings.com. The report provides a summary of the quarterly operating performance and credit metrics of companies in the for-profit hospital sector, including detailed debt and organizational structure charts.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

'High-Yield Healthcare Checkup' Apr. 4, 2014;

'2014 Outlook: U.S. Healthcare', Nov. 25, 2013;

'U.S. Leveraged Finance Spotlight Series - HCA Holdings, Inc.', Nov. 7, 2013;

'Margin Preservation Strategies - Different Angles (Credit Implications for U.S. Hospitals and Health Insurers)', Oct. 1, 2013;

'The Affordable Care Act and Healthcare Providers: Assessing the Potential Impact', May 1, 2013;

'Corporate Rating Methodology', Aug. 5, 2013.

Applicable Criteria and Related Research: Hospitals' Credit Diagnosis (Promising Early Experience Under Affordable Care Act)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751003

2014 Outlook: U.S. Healthcare - Secular Challenges Require a Compelling Value Proposition

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724141

U.S. Leveraged Finance Spotlight Series - HCA Holdings, Inc.

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721356

The Affordable Care Act and Healthcare Providers (Assessing the Potential Impact)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=706654

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

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Margin Preservation Strategies - Different Angles (Credit Implications for U.S. Hospitals and Health Insurers)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718975

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=736356

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Contacts

Fitch Ratings
Megan Neuburger
Senior Director
+1 212 908-0501
Fitch, Inc.
33 Whitehall Street
New York, NY 10004
or
Bob Kirby, CFA
Director
+1 312 368-3147
or
Kellie Geressy-Nilsen
Senior Director
FitchWire
+1 212 908-9123
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Megan Neuburger
Senior Director
+1 212 908-0501
Fitch, Inc.
33 Whitehall Street
New York, NY 10004
or
Bob Kirby, CFA
Director
+1 312 368-3147
or
Kellie Geressy-Nilsen
Senior Director
FitchWire
+1 212 908-9123
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com