Obamacare, Medicaid Growth Help Hospitals Boost Financials

The financial outlook for nonprofit healthcare facilities in the U.S. has improved enough that the hospital industry should be able to ward off upcoming shifts in government payments and moves by employers to coordinate care toward outpatient services, according to a report from Fitch Ratings. 

Most of the nation’s inpatient healthcare facilities are nonprofits. According to Fitch, liquidity levels have improved and the industry has built a solid financial cushion to "absorb potential operating volatility" in 2016.

"Clinical volumes in 2015 were higher than anticipated, primarily reflecting the benefits of increased coverage under the [Affordable Care Act], as well as growth in the Medicare population and a higher level of activity from commercial beneficiaries,” Fitch said in its report. "Providers in Medicaid expansion states experienced particularly higher clinical volumes with material reductions in charity care and bad debt expense. Clinical volumes from Medicare and commercial payors were also fairly solid with inpatient admissions holding steady year over year and higher levels of outpatient activity."

Several leading healthcare executives and analysts offered similar thoughts about the hospital industry at Forbes Healthcare Summit held last week in New York. While healthcare plans and others are concerned about the lack of young people signing up for subsidized private coverage on the public exchanges, there will continue to be growth as more states opt to expand Medicaid under the health law, according to the report. Forbes published a story on the Fitch report over the weekend.

James LeBuhn, senior director in Fitch’s U.S. Public Finance Group said that improving liquidity positions within the nonprofit healthcare sector reflects steady margin performance, lower capital spending and mostly favorable investment returns the last four years. 

"As a result, hospital and healthcare providers have greater financial cushion to absorb margin volatility and compression compared to several years ago,” he said.

But the gains might not last as insurers such as Aetna, Anthem, UnitedHealth Group and Blue Cross and Blue Shield plan to shift tens of billions of dollars toward value-based care and away from fee-for-service payments that have helped hospitals. The move to risk-based contracts is expected to build over the next three years.

Jennifer Kim, a director at Fitch, added, "Reimbursement pressures should be relatively benign in 2016, though the sector will over time see a shift of risk from payors like Medicare to providers. Employers will also continue to shift an increasing share of costs onto employees through higher co-pays and deductibles, a development that hospitals are learning to adapt to as well."