Con­sol­i­da­tion is ex­pected

Big­ger sys­tems ex­pected to fare bet­ter with new rules

Modern Healthcare - - Editorial -

Health re­form prom­ises years of un­cer­tainty as reg­u­la­tors and the in­dus­try adapt to the far-reach­ing law, but one trend seems all but en­sured, ac­cord­ing to an­a­lysts: hospi­tal con­sol­i­da­tion.

Poorly per­form­ing hos­pi­tals—of­ten solo hos­pi­tals or small health sys­tems—will find it that much harder to com­pete as changes in the newly passed law squeeze re­im­burse­ment and raise pres­sure to curb costs, said an­a­lysts with credit-rat­ing agen­cies last week.

Large health sys­tems that op­er­ate in mul­ti­ple states, more com­monly for-profit hospi­tal chains, are more likely to be at an ad­van­tage, thanks to the scale and di­ver­sity of their op­er­a­tions, an­a­lysts said. Jeff Schaub, an an­a­lyst with Fitch Rat­ings, noted large sys­tems are also more able to shed un­prof­itable ser­vices or fa­cil­i­ties that drag down per­for­mance.

Re­form adds to sig­nif­i­cant pres­sure on weak hos­pi­tals to con­sol­i­date from the econ­omy, re­cent credit up­heaval, and in­sur­ance con­sol­i­da­tion, said Mark Pas­caris, a Moody’s In­vestors Ser­vice vice pres­i­dent and se­nior an­a­lyst.

Ex­panded in­sur­ance cov­er­age un­der the law will re­duce the ex­pense of un­paid med­i­cal bills, credit agen­cies said, but the re­form pack­age also re­duces Medi­care hospi­tal spending by $155 bil­lion over a decade.

Stan­dard & Poor’s noted deal­mak­ing among in­sur­ers may in­crease as com­pa­nies pre­pare for new man­dates on how much rev­enue must be spent on med­i­cal costs and changes to Medi­care Ad­van­tage.

In­vestors did not ap­pear overly wor­ried about the in­dus­try’s prospects un­der the sweep­ing re­form.

Mu­nic­i­pal mar­kets, where not-for-profit hos­pi­tals bor­row for construction and tech­nol-

Pas­caris: Pres­sure will be on weak hos­pi­tals to con­sol­i­date.

Moro­zov: It ended a year of un­cer­tainty for the in­dus­try.

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