Healthcare Business News

Fiscal cliff threatens for-profit providers: Fitch

By Melanie Evans
Posted: November 29, 2012 - 1:45 pm ET

For-profit providers face the greatest risk from slashed spending and tax hikes known as the fiscal cliff, one major credit rating agency said in a newly released outlook for the healthcare industry.

For-profit providers could see lost revenue under a scheduled 2% Medicare pay cut and a slump in business “should elements of the fiscal cliff reduce economic activity and increase unemployment,” Fitch Ratings said in its 2013 outlook for for-profit healthcare, which includes acute-care hospital operators, drug and device manufacturers, diagnostic and life science companies and the healthcare service sector.

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Overall, the weak economy and fiscal cliff will drag on healthcare growth despite an aging population, the chronically ill and demand from emerging markets, the report said. The sector's outlook is stable, Fitch said.

The debate over the U.S. deficit could put healthcare profits at risk and could change the industry's outlook, Fitch said. “Healthcare entitlement reforms, including potentially large changes to the structure and funding of the Medicare and Medicaid programs, will be central to reduce the size of the U.S. federal deficit,” Fitch said.

Drugmakers continue to see brand-name drug patents expire, and generics manufacturers face pricing pressure, though generics producers benefit as patents lapse, the outlook said.

Medical device companies are facing pressure on prices from more than one source, including Medicare's value-based purchasing, though “procedure volumes seem to have reached a bottom in developed markets.” The sector will also see a medical device excise tax under the Patient Protection and Affordable Care Act starting in January.

Medicare incentives and penalties tied to value and hospital readmissions, which began in October under the Affordable Care Act, could “become a significant headwind to providers' profitability and cash flow” over time, Fitch said.

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