Healthcare Business News
 


Agencies don't see ACA ruling affecting ratings


By Beth Kutscher
Posted: March 21, 2012 - 6:30 pm ET
Tags:

(Story updated with additional content at 3 p.m. ET Thursday, March 22.)

The Supreme Court decision on the Patient Protection and Affordable Care Act is not expected to affect the credit outlooks of healthcare companies, analysts at ratings agencies said.

The Supreme Court will hear three days of oral arguments, totaling a monumental six hours, starting Monday. Although there are several distinct issues at hand, chief among them is whether the government can require U.S. citizens to purchase health insurance.

The individual mandate will not only add 32 million newly insured individuals in 2014, but it will help distribute risk among healthy and sicker individuals.

“We believe the mandate is necessary in order for the ACA to at least partially share risk and avoid adverse selection,” the analysts at Fitch Ratings wrote in a news release. “If squashed, we feel that the law's viability could be meaningfully affected.”

Advertisement | View Media Kit

 

Martin Arrick, managing director at Standard & Poor's, similarly noted that if payers are required to offer coverage regardless of health history or pre-existing conditions, individuals won't be incentivized to pay into a plan until they need it. “If you lose the mandate, you have to lose the required underwriting section,” he said. “That is the ultimate adverse selection mandate.”

In addition, the looming individual mandate has created time pressure to cut costs—which would be lost if the provision is struck down.

Still, Kevin Holloran, a director at Standard & Poor's, noted that hospitals have been operating as if the law will be upheld in its entirety. “I think we're moving forward as if it's going to be status quo,” he said. “We expect hospitals to be under increasing pressure.”

If the Court decides that the law is constitutional in its entirety, analysts at Fitch said they see higher volumes canceling out any decrease in margins stemming from implementation costs.

But Holloran noted that, even as volumes increase, reimbursement per unit of service will decrease—and that the payer mix might not be in hospitals' favor.

Moreover, Arrick said safety net hospitals will be particularly vulnerable since they are expected to see a sharp decline in the special money they receive to treat indigent patients. He pointed to the example of Boston Medical Center, which lost $100 million under Massachusetts' universal care law.

“We're beginning to feel that that's a net negative,” he said.

If the full law is struck down, analysts at both S&P and Fitch agreed that the current status quo will prevail—along with the full spectrum of problems that healthcare reform tried to solve.

“If you lose the law, you might lose some of the pressure to cut costs,” Arrick said. “As a result, it might not be a huge credit positive.”

The Fitch analysts added, however, that there is still uncertainty about what the timing and implementation of the law will look like—even more so if the high court strikes down certain provisions. “We also believe some action via Congress might also be necessary, particularly if the court determines the individual mandate is unconstitutional,” the analysts wrote.


What do you think?

Share your opinion. Send a letter to the Editor or Post a comment below.

Post a comment

Loading Comments Loading comments...

Search ModernHealthcare.com:


 

Switch to the new Modern Healthcare Daily News app

For the best experience of ModernHealthcare.com on your iPad, switch to the new Modern Healthcare app — it's optimized for your device but there is no need to download.