Revenue is forecast to improve in these industries with the implementation of the exchanges. Moreover, operating profit margins are projected to rise since commercial insurance payments make up a larger source of operating profit than government programs, such as Medicare and Medicaid. During the five years to 2011, operators in the listed industries have grown increasingly reliant on payments from private insurance. Government program payments, particularly Medicare, either barely cover the cost of providing care or reimburse at rates lower than the cost of care. Consequently, companies have been charging commercial insurance companies increasingly higher rates in order to make up for the shortfall in Medicare payments."
Well, we all know that. The key question is, can it continue? IBISWorld's argument is that more of the patient base will be covered commercially under exchanges, and that hospitals and health systems will retain pricing power.
I'm not so sure it's that simple, but if it takes a 10% annual increase in rates to draw regulatory scrutiny, maybe they're right.
Based on their scenario, and this is a big leap in guesswork by me, maybe the reason so many investors are interested in hospitals and health systems isn't that they think the hospital itself will be profitable long term, but that it provides a natural "holding company" model in which the owned physician practices, labs, EDs and other affiliated partners bring the profits. But hey, hospitals are in the list too, so maybe they're ultimately winners as well.
All that said, I don't know if I buy their argument. Do you? I'd love to hear from you if you agree with their conclusions.
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