Not-for-Profit Healthcare Outlook Stays Stable Despite Possible ACA Repeal

December 7, 2016 - The outlook next year for the not-for-profit and public healthcare sectors is considered stable, but Republican leaders' plans to repeal the Affordable Care Act is driving some uncertainty, Moody's Investors Service said in its latest outlook report.

In 2017, not-for-profit and public providers are expected to benefit from mildly higher inpatient and outpatient visits and revenue gains, which will cause operating cash flow to grow by at least 1%, Moody's said. However, the sectors are projected to see "mixed results" if the GOP successfully repeals the ACA without implementing a replacement policy. Millions of hospital patients who have coverage through the exchanges and Medicaid expansion could fall back into the ranks of the uninsured.

Operating cash flow grew by about 12% in 2014 and 2015 due in large part to Medicaid expansion, the report said. Although cash flow growth has significantly declined since 2015, it remains on the positive side.

Moody's analysts would consider changing the sector's outlook from stable to positive if operating cash flow growth was above 4% over the next 12 to 18 months. But the credit-rating agency may drop the outlook to negative if operating cash flow is projected to be flat or negative, or if there are major changes to Medicare and Medicaid, an increase in the uninsured rate or "changes to federal policy that disrupt the healthcare market."

President-elect Donald Trump and the Republican Congress have expressed a desire to fulfill their promise and repeal the ACA, although Trump has also shown a willingness to keep several parts of President Obama's law.

Not-for-profit and public providers also are expected to face shrinking bottom lines as expenses increase, analysts said. Hospitals and health systems continue to face more financial pressure as drug prices rise, labor expenses increase through more job hiring and pensions liabilities grow.

Bad debt will rise as more disruption on the ACA exchanges is expected, particularly for states that didn't expand Medicaid. High-deductible health plans and rising copays also will challenge hospitals.

But increased patient volume is projected to help offset rising expenses. Moody's said admissions and outpatient visits will tick up modestly in the future, assuming the uninsured rate stabilizes and isn't driven back up by a full repeal of the ACA.

Moody's expects hospitals will continue to acquire physician practices and merge with larger health systems. But analysts caution the agreements often lead to increases in operating and capital expenses, which can pressure margins.

Posted on ModernHealthcare
By Maria Castellucci

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