Hospitals have seen a short-term boost in volumes, revenues, and improved payer mix thanks to the Affordable Care Act, says Standard & Poor's.
Despite ''significant transformation'' in the healthcare market that includes long-term declines for inpatient admissions and reimbursements, and the uneven transition to value-based care, the credit outlook remains stable in 2016 for the nation's not-for-profit healthcare sector, according to Standard & Poor's Rating Services.
Kevin Holloran, a credit analyst with S&P, says hospitals have seen at least a short-term boost in volumes, revenues, and improved payer mix thanks largely to the commercial and government health insurance expansions under the Patient Protection and Affordable Care Act.
In addition, S&P says hospital leaders continue to improve management and performance, and thus improve the ledgers through efficiencies and economies of scale gained in mergers and acquisitions.
''While our outlook remains stable, and credits are responding well to numerous pressures, Standard & Poor's acknowledges that numerous challenges still exist, and that the industry remains in the midst of significant transformation," Holloran said in remarks accompanying his report.
S&P credits the Medicaid expansion with a recent uptick in patient volumes but said that's like a ''temporary surge.''
''While the majority of the improvement has been in Medicaid expansion states, even non-expansion states saw modest increased Medicaid enrollment as previously uninsured—
but qualified—people have signed up for coverage in light of the publicity surrounding the ACA,'' S&P said. ''For some providers, especially those in expansion states with a previously high level of uninsured patients, this has been remarkably significant and is reflected in a notable drop in the level of uninsured care, and typically, a commensurate rise in Medicaid revenue.''
S&P also noted that there is little evidence to suggest that new Medicaid enrollees are generating high medical costs "although there have been a few anecdotes to the contrary."
On mergers and acquisition, S&P said, the rationale is evolving. At first M&A's were seen as a way to gain market share, leverage with payers, and economies of scale.
Now, hospital leaders see M&A's as a good way to develop more comprehensive care models for the geographical regions they serve. S&P cautioned, however, that these M&A's are often taking place in a fee-for-service environment, and that only a handful of consolidated systems are operating in an at-risk payment model. In addition, hospital and health system M&A's are coming under increasing regulatory review by state and federal officials.
While the outlook is stable, S&P identified several areas of concern:
- The rollout for healthcare reforms such as value-based care has been uneven and slower than expected, with fee-for-service remaining the dominant payment model.
In addition, a "credit gap" continues to grow between larger providers with specific market skills and smaller providers that can't leverage their smaller size and scale.
- The reemergence of inpatient utilization pressures as volume and payer mix improvement are absorbed into baseline performance.
- The volatility of the investment income linked to recent declines in the financial markets.
- The growing cost and price consciousness of healthcare consumers when choosing health insurance and care networks.
"We believe growing price consciousness on the part of healthcare purchasers, including individual consumers as well as large insurance payors, will continue to challenge many hospitals' payor mixes in the absence of meaningful wage growth," S&P said.
"This could lead to declining patient volumes, particularly elective procedures, partly because more people have to bear the first-dollar cost of their healthcare through higher deductibles and copayments but also because more people have lost employer-sponsored insurance."
John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.