Hospital CFOs Don't Share Wall Street's Optimism About PPACA

, January 27, 2014

Financial analysts at some of Wall Street's top firms are bullish on the healthcare industry's prospects as a result of changes brought by healthcare reform. The CFO's I've been talking to over the past year don't see things the same way.

At a Nashville Health Care Council meeting last week, I listened to panelists from some of the biggest Wall Street firms discuss the healthcare industry's prospects for 2014. During the discussion about potential healthcare reform winners and losers, the consensus was clear: The analysts believe hospitals stand to benefit from the Patient Protection and Affordable Care Act more than most healthcare segments.

"I think the hospital sector is probably setting up as a winner just from the standpoint of incremental volume increase and alleviation of bad debt expense, which will be the top benefit from healthcare reform," said Ralph Giacobbe, director, healthcare research team at Credit Suisse. 

Kevin Fischbeck, healthcare facilities and managed care analyst, Bank of America Merrill Lynch Global Research agreed, saying, "Hospitals treat the uninsured already and are not getting paid for it, so I think increased incremental coverage will be very beneficial to the bottom line."  

Frank Morgan, managing director at RBC Capital Markets, echoed the sentiment when he said, "When I think about groups that could be positively impacted from healthcare reform and expanding access to care, certainly hospitals. I think it is good for their overall volume growth, especially around uncompensated care. Today about 8% of their patients are uninsured, so to the extent that that volume turns into paid business that would be good."

Many Unknowns
On the surface, this sounds like positive news for hospitals. However, after spending much of 2013 asking hospital and health system CFOs for their take on this subject, I'm unconvinced.

I tend to agree with Mark Bogen, senior vice president and CFO at South Nassau Communities Hospital in Oceanside, NY, who told me in August that it "more than remains to be seen" whether healthcare reform will succeed in delivering on the financial promise of decreasing bad debt and uncompensated care.

"We don't know what the heck is going to happen in the first year," he said. "It's likely that it's going to take some time to develop. It may actually take several years to develop, really, the trends and the impact of what will ultimately occur under reform."

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