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Corporate healthcare companies would see 'credit negative' status under GOP health bill, Moody's Investors says

Starting in 2020, combination of a larger uninsured population, decreased federal Medicaid spending would hurt healthcare companies.

Jeff Lagasse, Associate Editor

Photo by <a href=""> htmvalerio </a>Photo by htmvalerio

The American Health Care Act, if enacted in its current form, would be credit negative for most  corporate healthcare companies in the U.S., according to a new report from Moody's Investors Service.

The effects would be minimal over the next 12 to 18 months. But starting in 2020, when the most significant changes would occur, the combination of a larger uninsured population and decreased federal Medicaid spending would begin to hurt healthcare companies, particularly for-profit hospitals, pharmaceutical firms and medical device makers.

[Also: Children's hospitals trail in revenue growth, but generate stronger margins, Moody's says]

"The proposed changes to the individual insurance market would be modestly credit negative for healthcare companies over the next year or so, as some people choose to forgo health insurance," said Moody's Senior Vice President Jessica Gladstone in a statement. "But from 2020, the proposed law, if enacted, would be increasingly credit negative because healthcare coverage would become less affordable for more people -- particularly older Americans -- resulting in a larger uninsured population and a greater reduction in demand."

The Congressional Budget Office estimates that by 2020 some 21 million more Americans would be uninsured under the proposed bill than under the Affordable Care Act, and that health insurance would become increasingly unaffordable for older patients, who tend to be large consumers of healthcare.

[Also: GOP's own 3-bucket approach to Obamacare repeal causing dissent among party members]

In states that did not expand Medicaid under the ACA, certain proposals in the AHCA would increase funding to hospitals beginning in 2018, the report said. The proposed law also includes additional "safety net" funding to help these states care for the uninsured. But beginning in 2020, reductions in Medicaid will be significant, with total federal Medicaid spending being an estimated $880 billion lower under the AHCA than currently forecasted under the ACA between 2017-2026. This would negatively affect hospitals and, in turn, medical device makers, as well as pharmaceutical companies, Moody's said. The cost of providing emergent care to the uninsured would also increasingly fall to hospitals, and their bad debt expense levels would rise accordingly.

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In the meantime, the repeal of industry taxes, slated for 2018, would modestly benefit pharmaceutical companies and medical device makers, the report found. Pharmaceutical industry fees under the ACA total about $2.7 billion a year, and the medical device tax set to take effect in 2018 amounts to about $2 billion per year, Moody's said. Yet despite the lower taxes both industries would reap under AHCA versus the ACA, the benefit would be more than offset by the negative effects of declining insured patients and Medicaid funding.

The AHCA doesn't address reductions in hospitals' annual reimbursement updates for Medicare rates, however. If these cuts stand, hospitals would lose about $300 billion in revenue from 2018 to 2026, and their margins would suffer as they absorb higher bad debt expense stemming from more uninsured under the AHCA, as well as inflationary cost pressure without an offsetting increase in Medicare rates.

Twitter: @JELagasse

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