Cuts in Medicare reimbursements that are likely to be part of any healthcare reform legislation could adversely impact credit ratings for hospitals and health systems across the country, particularly in urban areas, according to new analysis by Moody's Investor Service.
The study noted the conflicting goals of healthcare reform—expanding access to care while simultaneously reducing costs—could have significant negative implications for many high-cost urban hospitals, even if the number of insured patients increases.
"Attempts to minimize variation in healthcare costs among regions are almost certainly going to involve cuts in Medicare reimbursements to high-cost providers, which could result in rating downgrades similar to actions taken a decade ago, following the Balanced Budget Act of 1997," according to Moody's report.
Citing data from the Dartmouth Atlas of Healthcare, which monitors medical practices and costs in 306 Hospital Referral Regions (HHR) across the nation, Moody's noted huge variations in hospital pricing from region to region, ranging from $5,300 per Medicare enrollee to more than $16,000 in 2006.
Moody's rates more than 50 hospitals or health systems, and noted that all but one of the 17 highest HHRs are in urban markets. "There are many reasons why healthcare in urban areas can be more costly: high cost of living; elevated poverty and unemployment; diverse populations with diverse healthcare needs; presence of high cost academic research hospitals," the report noted.
Moody's wrote hospitals that are best positioned to withstand large Medicare cuts in high-cost regions will be part of multi-state systems that can rely on broader economies of scale and import cost-efficiencies from beyond their region, and those hospital systems that can gain the most new paying patients that are newly covered by health insurance.
Conversely, the most vulnerable hospitals will be those stand-alone hospitals that are dependent upon high-cost referral practices and that don't gain many new paying patients.
"The sharp regional cost differences across the U.S. highlight the local nature of healthcare markets. Unlike many industries, including higher education, which have a national customer base, hospitals typically draw more than 90% of their patients from within 50 miles of the hospital. When referrals, practices, and/or reimbursement patterns emerge within a community, they tend to stay entrenched locally because little competition exists from providers outside the region," the report noted.