Hospitals, pharma could bear brunt of deficit-cutting measures, Moody's says

Hospitals and pharmaceutical companies will likely be hit hardest by proposals from the deficit-reduction supercommittee, Moody's Investors Service said.

Proposals could include reduced federal funding to offset unpaid Medicare co-insurance or deductibles and medical education costs, Moody's said in a quarterly report. Not-for-profit hospitals would be more vulnerable than for-profits to such reductions, the report said.

Medicare accounts for 43% of tax-exempt hospital revenue and many teaching hospitals are not-for-profits, according to the rating agency. For-profits rely on Medicare for 30% of revenue, the report said. Proposals to curb provider taxes that boost federal Medicaid financing could also squeeze not-for-profits, Moody's said.

Pharmaceutical companies could see revenue drop by 2% to 7% should the federal government require more significant rebates for seniors enrolled in Medicare and Medicaid. Moody's said the estimate was based on a comparison of the proposed $135 billion, 10-year savings from the rebate proposal against the drug industry savings under the 2010 health reform law.

The alternative to the committee proposals, a reduction to Medicare reimbursement of up to 2%, “would likely prove far less onerous than any targeted cuts proposed by the committee,” the ratings agency said. Home-care providers rely the most on Medicare, the report said. Not-for-profit hospitals could try to offset costs by raising commercial rates, the report said. The 2% Medicare cut would “compromise” for-profit hospitals profitability. Skilled-nursing facilities and dialysis companies would also face pressure on margins, the report said.

Medicare and Medicaid managed-care insurers could benefit under various deficit-reduction measures. Medicare Advantage insurers could benefit from enrollment gains should policymakers adopt proposals that require seniors to pay a greater share of Medicare expenses. States may more aggressively adopt Medicaid managed care should federal Medicaid financing drop.