Hospital execs assure investors that they can weather ACA repeal

Hospital executives who paraded before investors last week at the J.P. Morgan Healthcare Conference in San Francisco put on a brave face about the coming repeal of the Affordable Care Act.

To be sure, they were worried about the millions of Americans newly insured under the exchanges and state Medicaid expansions whose coverage is threatened.

Kaiser Permanente CEO Bernard Tyson said it would be unconscionable for Congress to repeal the ACA without a simultaneous replacement. And he went further by insisting that the current ACA be the “starting point” for benefits and provider standards in a replacement plan.

That was the compassionate side. At the same time, systems were talking to investors and analysts, and they chose not to spook them with dire predictions about the impacts of repeal.

Tenet Healthcare CEO Trevor Fetter told his audience during a packed session that two-thirds of the ACA patients that Tenet sees had health insurance before Obamacare and had moved over to the exchanges.

Dallas-based Tenet, the nation's third-largest investor-owned hospital company, derives about 3% of its admissions and 5% of revenue from exchange patients, Fetter said.

But here's the kicker: Tenet has seen about $230 million in benefits from the healthcare law between its inception in 2010 and 2016. In contrast, Medicare cuts imposed under the law have cost Tenet $350 million over that time, Fetter said. That's a net negative of $120 million since 2010.

“Once you look back to the Medicare cuts that began in 2010, we believe that the ACA has lowered our cumulative earnings, not raised them,” Fetter said.

LifePoint Health CEO Bill Carpenter made a similar point last month at the Citi 2016 Global Healthcare Conference. LifePoint, the nation's fourth-largest investor-owned hospital company, generates from ACA volumes about $60 million annually in earnings before interest, taxes, depreciation and amortization, Carpenter told the assembled analysts.

If the new Congress and the Donald Trump administration simply repealed ACA and reversed the Medicare cuts made as part of the program, LifePoint would be no worse off, he said.

But the world typically doesn't work that way, Wright Lassiter III, the new CEO of the Henry Ford Health System in Detroit, said in an interview. Government reimbursement cuts are unlikely to be completely restored, especially as budget deficits and competing priorities vie for dollars, he said.

Lassiter said subsidized insurance and Medicaid expansion under the ACA in Michigan have given the newly insured an opportunity to seek preventive care and early diagnosis. That's a benefit to the overall health of the community and a dynamic to keep costs in check if people can get care before their afflictions send them to emergency rooms.

Or, as Tyson put it at the J.P. Morgan conference, previously uninsured patients have gained access “to the front door” of healthcare.

Investor fears of an ACA repeal, meanwhile, have abated. After a panicked sell-off of hospital stocks immediately following Donald Trump's election, most have rebounded back to where they started or slightly above.

The stock price of Community Health Systems closed Friday at $6.94, up 17% since Nov. 8. Select Medical's shares rose 30% over that time to $14.85.

Shares of bellwether HCA Holdings, the nation's largest investor-owned hospital company, were down just 2% to $79.41. Similarly, LifePoint's shares had regained most of the ground they had lost, closing at $59.20 Friday, down 3% since Nov. 8.

Even Tenet has rallied. Its shares closed Friday at $18.22, down 10% from a Nov. 8 close of $20.27. But its shares had sunk as low as $14.38 on Dec. 14.

Fitch Ratings Managing Director Megan Neuburger said if the ACA went away overnight, the impact on hospitals would not cause a mass downgrading of their debt. Neuburger said there would be an assumption that at least some of the Medicare cuts made as part of ACA would be restored. “It would not be the end of the world.”