GOP bill would increase providers’ free care

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The Republican replacement for the Affordable Care Act revives an expensive problem for U.S. hospitals: Who pays for the uninsured?

Hospitals, and companies that operate them such as Tenet Healthcare and Community Health Systems, have been on a roller-coaster since the inauguration of President Donald Trump, who said during his campaign that “everybody’s got to be covered.” However, the latest Republican bill to replace Obamacare would add millions of people to the uninsured rolls, and, in turn, would increase the amount of care that hospitals end up providing without getting paid for it.

A potential rising tide of uncompensated care will reduce operating margins for provider organizations and may offer additional challenges for those that are considering major capital projects or investments in information or other medical technology.

Unlike insurers, drugmakers and other healthcare companies, acute care hospitals can’t refuse to serve patients because of a lack of ability to pay. As the number of people without insurance fell under Obamacare, hospitals’ uncompensated care costs dropped as well—t o $35.7 billion in 2015 from $45.9 billion in 2012, according to the American Hospital Association.

Under the Republicans’ bill, the nonpartisan Congressional Budget Office projects an increase of 24 million uninsured by 2026. That would send the uninsured rate for people under 65 to close to 20 percent, even higher than before Obamacare went into effect, as people lose Medicaid and private coverage. That doesn’t mean those people won’t need medical care—just that hospitals and other providers are unlikely to get paid for it when they do.

“We’re not going to make the healthcare costs of these individuals go away; we’re just going to move them back onto hospital balance sheets,” says Craig Garthwaite, an associate professor at Northwestern University’s Kellogg School of Management. “It’s not like somehow not providing care to people saves money, it just shifts who ends up paying for it.”

Hospital stocks began to falter in 2015 when it became clear that, while companies had taken reimbursement cuts as part of the ACA, the increases in coverage had likely maxed out. That was in part because 19 states declined to expand coverage under Medicaid, the program for the poor, and sign-ups for individual plans came in below the Obama administration’s projections. The coverage expansions were paid for, in part, by cutting some payments to hospitals.

Stock prices, such as those of Community Health and Tenet have suffered since. Tenet declined to comment, and representatives of Community Health didn’t respond to a request for comment.

“We’ve got 100 percent of the cuts that we expected and less than 100 percent of the coverage,” Tenet Chief Executive Officer Trevor Fetter said Tuesday at the Barclay’s Global Healthcare Conference in Miami. “So to the extent that that erodes further, we have concerns.”

Hospitals would have benefited enormously with just slightly greater increases in coverage, said John Morrow, an analyst with Franklin Trust Ratings. They invest heavily in infrastructure and personnel, and once operating costs are covered, each new patient adds to their profit margin, he said.

Hospital companies’ earnings before interest, taxes, depreciation and amortization could drop 6 percent under the projected increase in uninsured, according to an analysis by Bloomberg Intelligence. Companies are skittish about the future; for example, Tenet is holding off on capital-investment projects that take four to five years from conception to completion because of uncertainty in the regulatory environment, Fetter said.

At Delta County Memorial Hospital in Colorado, unpaid patient bills dropped to 2.3 percent of total annual revenue in 2016 as Medicaid expanded, from 11 percent in 2011. With the threat of a Medicaid rollback, Delta also is putting off expansion, CEO Jason Cleckler said. “It’s risky to increase your debt right now,” he says.

Starting in 2020, the Republican bill would become increasingly credit negative for healthcare companies as coverage becomes less affordable for more people, Moody’s Investors Service said Friday in a report. The larger uninsured population and decreased federal Medicaid spending would take a toll on for-profit hospitals, pharmaceutical firms and medical-device makers, the ratings company said.

While hospitals were plagued with uncertainty before the Republican bill was introduced, it now looks even more dire, said Sheryl Skolnick, an analyst with Mizuho Securities. The bill’s impact is “probably going to be worse than the prior worse case for hospitals,” she says. “Hospitals had better hope, we think, that we’re wrong and this thing doesn’t pass.”

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