Moody's Eyes Depressed Sales, Weaker Payer Mix Under AHCA

The bond rating agency says the Republican plan to repeal and replace the Patient Protection and Affordable Care Act would hurt drug and medical device makers and increase bad debt burdens at for-profit hospitals.

Criticism of the American Health Care Act is coming from all directions.

The nation's largest healthcare provider and patient advocacy associations, including the American Hospital Association, the American Medical Association, and AARP, denounced the plan to repeal and replace the Affordable Care Act hours after it was made public.

And that was before the nonpartisan Congressional Budget Office said AHCA would increase the nation's uninsured population by 24 million within the decade, and slash Medicaid funding by $880 billion.

Now, Moody's Investors Service says AHCA in its current form would be a credit negative for most for-profit healthcare companies.

"The proposed changes to the individual insurance market would be modestly credit negative for healthcare companies over the next year or so, as some people choose to forgo health insurance," Moody's Senior Vice President Jessica Gladstone said in ratings brief.

"But from 2020, the proposed law, if enacted, would be increasingly credit negative because healthcare coverage would become less affordable for more people, particularly older Americans, resulting in a larger uninsured population and a greater reduction in demand."

Moody's says there are provisions in the AHCA that would soften the immediate impact of the cuts, such as increased funding for hospitals in Medicaid non-expansion states, and additional funding for safety net hospitals to offset the costs of caring for the uninsured.

Forecast: Depressed Sales, Weaker Payer Mix
However, by 2020 the $880 billion in cuts to Medicaid would begin to take effect and the growing uninsured population, unable to afford care, would depress sales for drug and medical device makers, and would expose for-profit hospitals to higher levels of bad debt.

The AHCA's repeal of the medical device and prescription drug taxes in 2018 would provide about $4.7 billion in relief annually for the two industries, but Moody's says those benefits would be offset by the negative effects of the declining insured patients and Medicaid funding.

The Republican plan also doesn't address the ACA's reductions in hospitals' annual reimbursement updates from Medicare, which will cost hospitals about $300 billion in revenue from 2018 to 2026.

If those reductions remain in place, hospital margins would tighten as they absorb more bad debt expense from more uninsured people under the AHCA, and inflationary pressures without an offsetting increase in Medicare rates, Moody's said.

Last week, Moody's and S&P Global Ratings issued research briefs warning that the AHCA's Medicaid reductions would strain operating revenues in both the for-profit and not-for-profit hospital sectors.

"The overall payer mix for providers would weaken as the number of people without insurance would most likely rise as would the hospital sector's level of bad debt and charity care expenses," S&P said.

"Under the proposed bill, minimum insurance requirements will be diluted, and coupled with the elimination of the mandate to buy coverage, we believe preventive care may decrease, leading to higher costs over the longer term. In additional the further growth in high-deductible plans that is likely, combined with greater levels of uninsured people, could result in higher health care costs to consumers."