Healthcare Business News

Mass. law could hurt providers' credit: S&P

By Beth Kutscher
Posted: September 4, 2012 - 5:30 pm ET

Healthcare providers that operate in Massachusetts could be at a disadvantage following the implementation of a new cost-containment law, Standard & Poor's Ratings Services said.

The ratings agency noted that the law could put pressure on operating margins, which would in turn affect credit ratings. It added that the impact might not be felt for at least 18 months, but ultimately the extent of ratings hit will depend on how quickly and successfully healthcare providers can cut costs.

The legislation, signed by Gov. Deval Patrick on Aug. 6, requires healthcare providers across Massachusetts to limit spending increases to a rate no higher than the rate of change in the gross state product through 2017 and to a half a percentage point below the rate of change in the gross state product thereafter. Penalties for not complying amount to $500,000.

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The law also implements an assessment on the state's larger providers to help pay for infrastructure improvements at smaller community hospitals, and requires all providers to adopt alternative payment models, such as bundling, that help control costs for specific patient populations.

S&P noted that the legislation will also have the effect of requiring providers to add additional oversight to monitor their spending, and will increase scrutiny on payments, and particularly how they're tied to quality measures.

The ratings agency said in its report that while providers have been successful in cutting costs for some time—and they now have some financial cushion—those efforts are likely to be hampered by continuing declines in inpatient volume and both state and federal reimbursement pressure. It added that early adopters of alternative payment models are likely to be better insulated from that part of the law.

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