No Boost to NFP Hospital Bond Ratings from Medicaid Expansion

The neutral effect of Medicaid expansion comes even though some not-for-hospitals are seeing payer mix changes that are "really extraordinary," a Standard & Poor's Ratings Services senior executive says.

Medicaid expansion has played no role in rating the credit worthiness of acute care not-for-profit hospitals, a sector that continues to confront a negative credit outlook, Standard & Poor's Ratings Services analysts say.

"Is there any correlation to upgrades and downgrades based on if you're in a Medicaid expansion state? The answer really is no," S&P Senior Director J. Kevin Holloran said at a Thursday afternoon webinar hosted by the ratings service.

"We've had 256 ratings in expansion states and 211 ratings in non-expansion states, so a very equal number, and there really is no correlation to upgrade. Basically it is an even split. Just over 50% of upgrades occurred in non-expansion states and 55% of downgrades occurred in expansion states."

Holloran says analysts have been watching the expansion closely to see if there would be a "natural lift up in those states that did expand and right now, today, we aren't seeing it."

"We hear that it is still improvements on the margins, so to speak. 'I am getting zero cents on the dollar from self-pay and now I am getting 20 or 30 cents on the dollar from Medicaid. If it went up two or three percentage points, that is all good news and we are appreciative of it as an organization, but it isn't curing all that ails me. While I am grateful that it is there, it is something that I am going to watch over time to see what happens with the rest of my payer mix.'"

A Cleaner Picture
"So, it's another change to the payer mix, is what we are seeing from a lot of organizations," Holloran says. "It is certainly initially a little helpful. Once we get a track record and see what levels out, by leveling out the entire payer mix, after the impact of the exchanges as well, we will have a better and cleaner picture of what the organization's payer mix looks like on a longer go-forward basis."

S&P Managing Director Martin Arrick, who co-hosted the webinar, says the neutral effect of Medicaid expansion comes even though some not-for-hospitals are seeing payer mix changes that are "really extraordinary."

"I'm seeing cases where Medicaid percentage is up 2%, 3%, and in some cases even 4% and that's being matched by drops in uninsured percentages of comparable amounts," Arrick says. "That seems like a pretty huge positive in some cases."

"But the other thing is depending upon where you are and what your pre-reform payer mix was, there are a lot of cases where it's not making any change at all. We aren't seeing the needle move."

A Financial Chasm

While the not-for-profit sector appears to be little affected by Medicaid expansion, reports from other analysts have shown that the expansion has been a windfall for the for-profit hospital sector.

In September, PwC Health Research Institute found that Medicaid expansion—in place for less than one year—is creating a financial chasm between hospitals in states that accepted the expansion money and those that have rejected it.

Arrick says there are several factors in play.

"The for-profit sector is very top-line oriented. The for-profit sector reports every quarter and there are about one dozen companies, so you get a view of the entire sector every quarter. They are public companies and they have an interest in managing all of their metrics and their equity metrics, etc. They get their story out there every quarter," he says. "The not-for profit world tends to report on an annual basis. We are not even a year in and we don't have all of the reporting. It is still anecdotal."

Medicaid expansion and the health insurance exchanges have also provided more coverage options for healthcare consumers, who can now shop for care at for-profit hospitals.

"If you are one of those folks who now has an insurance card for the first time, you can shop around," Arrick says. "Perhaps you used to go to the safety net hospital because that is where you felt at home."

Holloran says not-for-profit hospitals also tend to be more conservative with their finances, with a mission-oriented, long-term outlook.

"For the not-for-profit sector it is very common for us to meet with individuals who are part of organizations that have been around for 100+ years, and they are building and trying to sustain their organization for the next 100 years. They don't operate on a quarter-by-quarter nature," he says.

Whatever the reason, Arrick says that both the for-profit and not-for-profit hospital sectors face a negative credit outlook for many of the same reasons.

"They're not changing the bottom line, so to speak," he says.