CHICAGO--(BUSINESS WIRE)--Changing dynamics and the implementation of the Affordable Care Act (ACA) are increasingly limiting the U.S. healthcare industry's ability to pass cost increases through to consumers, forcing hospitals and insurers to adopt a variety of margin preservation strategies, according to a Fitch Ratings report.
Increasing industry challenges include medical cost inflation, changing demographics, uncertainty around the implementation of the ACA, and U.S. fiscal conditions. Fitch's report focuses on the U.S. health insurance industry, as well as the U.S. for-profit and not-for-profit hospitals sectors.
Onerous capital requirements, operational complexities and the localized nature of healthcare prevent vertical integration strategies from being widely adopted as a margin preservation strategy. Both insurers and hospitals are selectively adopting partial integration strategies in geographically confined areas.
Hospitals have focused on horizontal integration strategies to add scale and spread fixed costs over a larger revenue base. Enhanced size also improves hospitals' bargaining positions with health insurers when negotiating contracts. Health insurer consolidation has been prevalent for two decades.
Like hospitals, health insurers are seeking to add scale, reduce unit costs and enhance bargaining power over providers. Fitch believes that scale-focused acquisitions by hospitals and insurers are likely to continue.
Fitch views the industry's shifting payment model's credit implications as a potential positive for insurers and negative for both the for-profit and not-for-profit hospitals. However, the movement to this model will take time to develop. Over the longer term, Fitch believes that these effects could reverse if health providers develop sufficient geographic coverage and clinical data capabilities to directly contract with individual and group purchasers.
The full report 'Margin Preservation Strategies - Different Angles' is available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Margin Preservation Strategies - Different Angles (Credit Implications for U.S. Hospitals and Health Insurers)