Consolidation is expected
Bigger systems expected to fare better with new rules
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.