Analysts at Fitch Ratings say the rollout of the various parts of the Affordable Care Act won't radically overhaul the health care sector overnight. In fact, they write, the breathlessly anticipated bump in patient volumes early next year merely "might provide a temporary boost to utilization." Beyond that, the biggest effect of the reform law will be to quicken the already vigorous pace of mergers and acquisitions.
Without an obvious catalyst for a recovery in weak organic growth, healthcare providers must instead look for a bottom-up solution to offset the effects on financial results. A trend of industry consolidation is reflective of the fact that economies of scale and vertical consolidation will support profitability in an environment where healthcare providers face slow organic growth and are required to accept more financial risk, such as through bundled or value-based payments.
Much of the impressive 2013 run for hospital stocks has been optimism about the sector's 2014 prospects, when large numbers of uninsured people will make their way into the system. But Fitch Ratings analysts on Thursday said the benefit won't be instantaneous.
The health insurance expansion mandate of the ACA will provide a boost to the industry's weak patient utilization trends in starting in 2014. However, given the slow progress in the development of some of the key elements of the legislation, it will be a transitional year. The benefits to the hospital industry, including higher patient volumes and a lower level of uncompensated care, will occur gradually.
Editor's note: This is the third post from the Nashville Health Care Council's 2013 Leadership Health Care Delegation to Washington. Click here for other entries from this year and last.
Attendees of Leadership Health Care’s 2013 Delegation to Washington, D.C., were treated to a keynote speech by David Wasserman, house editor for The Cook Political Report. Founded in 1984, The Cook Political Report provides analyses of Presidential, U.S. Senate, House and gubernatorial races. In addition to his current role, Wasserman served as an analyst for the NBC News Election Night Decision Desk in 2012, 2010 and 2008, and has appeared on a number of networks.
Wasserman hosted a lively discussion with the group on political forecasting trends and gave the audience insight on the current political landscape and what’s in store for the 2014 and 2016 elections. After the event had wrapped up, Wasserman took a few minutes to further discuss health care policy, including the big choices many Republican governors need to make in the next year and a half.
Editor's note: This is the second post from the Nashville Health Care Council's 2013 Leadership Health Care Delegation to Washington. Click here for other entries from this year and last.
On the second day of the Nashville Health Care Council’s 11th annual Leadership Health Care delegation to Washington, D.C., Tennessee’s Congressional Delegation spoke to LHC members about the health care challenges facing the nation and its policymakers, and the steps that legislators are pursuing to move those issues toward favorable resolution.
The meetings occurred just hours before Senate Republicans were scheduled to meet with President Obama on Capitol Hill. Sens. Bob Corker and Lamar Alexander said that among the topics they hope to discuss with the president — in addition to the prospects for a “grand bargain” fiscal deal — is the need for a 75-year fix on Medicare benefits payment structure to ensure the program remains solvent for America’s seniors.
“This is the biggest issue facing our nation, and there’s no way to solve it without [the President’s] leadership in making the tough decisions we need to make, and I hope he takes us up on that,” Corker said. “I think we have the environment set to do something really great for our nation.”
The senators also discussed the continued challenges for health care reform implementation facing Americans in the years ahead. Alexander, who has voted several times to repeal the Patient Protection and Affordable Care Act, said he expects the country will experience “rate shock” at health care premium costs, that some employees will lose employer-based health insurance and more and more individuals will move onto Medicaid rolls.
“There are a lot of things we could do to change that law,” Alexander said. “But fundamentally what we need to do is focus on the real problem, which is the total cost of health care, and then focus on ways to involve consumers as a way of bringing that down.”
According to Rep. Jim Cooper of Nashville, health care costs are two thirds of the problem when it comes to deficits and debt. He noted that the Affordable Care Act is a focused law trying to reduce some of the drivers behind ballooning health care costs via the Independent Payment Advisory Board and so-called “Cadillac tax” on the most expensive health insurance plans.
Digging deeper into the various Affordable Care Act programs under development and implementation, Director of the Office of Health Reform in the U.S. Department of Health and Human Services Michael Hash provided delegates with a point-by-point walk-through of his office’s activities. Among the work he discussed was the status of health insurance marketplace development in states across the country, the creation of a streamlined application process for individuals who want to purchase insurance through these marketplaces, and implementation of programs designed to improve the health care delivery system, such as the Accountable Care Organization initiative and the Hospital Value-Based Purchasing Program.
Without delivery system reform that looks at lowering health care cost increases over time, “much of the promise of the Affordable Care Act will not become a reality,” Hash said. “We’ve been laying what we think is the groundwork for delivering on the promises of the ACA.”
Looking ahead, Rep. Marsha Blackburn provided some insight into the future of what could happen with regard to a fix for the Sustainable Growth Rate — the so-called “Doc Fix” — which was not addressed in the Affordable Care Act. She said that she and her colleagues on the House Energy & Commerce Committee, as well as those on the House Ways & Means Committee, are working toward a long-term solution, which will help remove one driver of perpetual financial uncertainty in the health care market. She said to expect to see action on the doc fix to move forward before the August congressional recess.
Cooper also argued that, in addition to making changes to improve the financial side of our health care system, more must be done on the behavioral side of the equation to help individuals live healthier lives. He suggested LHC members and other Nashville health care leaders could help attack both behavioral and cost challenges by developing solutions that are not focused solely on growing profits and stock prices, but at improving efficiency and making people healthier.
Cooper, Alexander and the other speakers all congratulated LHC delegates for the work they’re doing in Nashville to improve the health care system.
“We’re very proud of Nashville and entrepreneurial health care,” Alexander said. “Nashville has always been the entrepreneurial center for health care, and it should help us with innovation and help us as we go through the next decade look at lowering the total cost of health care.”
Sen. Bob Corker, Rep. Marsha Blackburn, Sen. Lamar Alexander and Mike Hash, director of the Office of Health Reform at U.S. Department of Health & Human Services
Middle Tennessee's publicly traded hospital companies got a boost Tuesday from analysts at JPMorgan Chase, who began covering them and others in the industry with mostly positive ratings and price targets that leave a lot of upside. The researchers rate HCA Holdings, Community Health Systems and LifePoint Hospitals at 'overweight' and Vanguard Health Systems at 'neutral.' The last of those companies, they said, will not be able to take advantage as much of the benefits of health care reform, while CHS will see its EBITDA grow almost 10 percent because of reform and LifePoint will benefit most.
In terms of price targets and investors' reaction today, here's a rundown:
• HCA: $39 target, changing hands late in the session at $31.67, up 1.5 percent
• CHS: $38 target, trading at about $31.40, up more than 3 percent
• LifePoint: $46 target, trading at $38.50, up more than 4 percent
• Vanguard: $13 target, up almost 3 percent to $11.80.