Although Fitch Ratings recently revised six health insurers' rating outlooks to negative, the net effect of healthcare reform on the nonprofit acute care sector is less clear and is more likely to vary in magnitude and direction among individual hospitals and health systems. Fitch's revision of the insurers' outlooks reflects the potential financial stress of healthcare reform and results in a negative outlook for all 12 of Fitch's rated health insurance organizations. While insurer financial stress would be felt by providers, in Fitch's view the potential positive elements of reform, such as fewer uninsured, could mitigate negative pressures. Coupled with hospitals’ adaptability and operational strength, Fitch does not expect healthcare reform to lead to broad, multi-notch downgrades of hospitals and health systems. Fitch maintains a negative outlook for the nonprofit acute care sector, reflecting the expectation that downgrades will exceed upgrades for the next 12 to 24 months but that affirmations will remain the most common rating action.
Fitch's outlook for the nonprofit acute care sector has been negative since December 2008, in large measure due to the pressures of the current recession, but also factoring in uncertainties about healthcare reform. Fitch believes that major reimbursement changes are, at a minimum, a few years off. Proposals that directly reduce payments to hospitals are a concern across the sector; less clear is how changes in reimbursement methodology would affect individual hospital ratings.
Fitch views hospitals and systems with certain characteristics as better positioned to adjust and even benefit in a post-reform environment. These characteristics include solid physician alignment strategies and high levels of integration, the ability to measure, report, and deliver superior outcomes, favorable cost positions related to competitors, and sufficient scale and financial flexibility to absorb potential decreases in reimbursement without severely impairing financial standing.
Read the Fitch Ratings press release (registration required).
