If the Affordable Care Act is fully or partially nullified by the US Supreme Court, for-profit hospital operators will face a credit-negative situation as costs increase and profit margins shrink, according to a special comment report from Moody's Investors Service.
That could be detrimental to the credit position of for-profit, acute-care hospital operators such as Community Health Systems, HCA, and Tenet Healthcare Corp., which could find themselves with less cash flow available to reduce debt.
"If the law is fully or partially repealed, for-profit hospital operators' costs of treating patients unable to pay their bills would rise, and limit operators' revenue growth and profit margins, and constrain cash flow," explains Dean Diaz, a Moody's vice president-senior credit officer and author of the report. "Bad debt expense already averages over 10% of revenue of our rated for-profit hospital operators."
In terms of the interest of for-profit hospital operators the complete elimination of the entire ACA is slightly more preferable than simply severing the individual mandate from the ACA, which would put more pressure on for-profit hospital operators. "Without the mandate the number of uninsured patients will likely expand and there won't be a large enough pool of insured patients to help offset those treatment costs," Diaz told HealthLeaders Media.
According to the report "many parts of the law are tied to the assumption that the individual mandate will lead to an increase in the number of individuals with health insurance." Removing only the mandate creates questions about how some remaining provisions of the healthcare law will affect for-profit hospital operators.