Health Care Ruling Should Bolster Hospital Bonds

By: Dr. Jay H. Abrams
Chief Municipal Credit Analyst

• Looking for Specific Bonds?

Do you have specific criteria for bonds you're looking for? Let us know and we'll e-mail you bonds that fit your needs. There is no charge for this service.

By Dr. Jay H. Abrams, Chief Municipal Credit Analyst

The Supreme Court’s recent decision to uphold the federal health care law could have a number of benefits for the nonprofit health care sector. 

Although implementation is in the early stages and will require changes in the way many hospitals operate, most providers have already begun making adjustments.

Improved patient volumes, a major reduction in uncompensated care and new cost controls are all features of the Patient Protection and Affordable Care Act. Based on the industry’s ability to adapt to past reforms, and the success Massachusetts has had implementing a similar approach to the new law, we are optimistic that the hospitals will meet any challenges the new law may present.

Bond ratings should remain stable

Since the court’s decision is unlikely, by itself, to affect the overall credit quality of the health-care industry during much of the implementation period, hospital bond ratings are expected to remain stable for now, according to statements released by all three major rating agencies. Hospital bond ratings have been generally stable in recent years, and profitability in the sector has been solid. 

For hospitals, the most significant feature of the law will be the expansion of both private insurance and Medicaid to cover many of the estimated 32 million Americans lacking coverage. Currently, hospitals’ uncompensated care can amount to as much as 50% of gross revenues. 

The law also promises improvements in healthcare delivery.

It is anticipated that other factors contributing to hospitals’ bottom lines will include increased alignment among health-care providers, insurers and doctors, leading to greater operational efficiencies and less duplication of services. 

Emergency rooms are expected to see a drop in the number of expensive, uninsured patients, since insured individuals typically seek treatment from their own physicians before turning to ERs for primary care. 

Hospitals throughout the country have already begun preparing for the law. As with earlier health-care reforms, hospitals have manageable and flexible business models that allow them to reconfigure service offerings to ensure long-term financial viability.

7/12/2012