Hospital-sector analysts say they are more hesitant to invest in hospitals in Medicaid expansion states since those would face the biggest financial impacts from the effort to repeal and replace parts of the Affordable Care Act.

May 24—Although the American Health Care Act (AHCA) is undergoing major legislative changes, the version that passed the House in April would increase the future number of uninsured by 23 million, according to a new score.

The Congressional Budget Office (CBO), which this week released its long-awaited analysis of the bill, projected that 23 million people (1 million less than in a previously scored version of the bill) would lose coverage they would otherwise have over the next 10 years, while the federal deficit would be reduced by $119 billion. The bulk of the increase in uninsured would come through the loss of Medicaid coverage, for which 14 million would lose eligibility or not gain eligibility as expected.

Critics of the AHCA said the projections indicate the extent of damage that the bill would inflict on those with Affordable Care Act (ACA) coverage and on the healthcare industry that treats them.

But supporters of the AHCA noted that the CBO had a mixed record in its projections of how many would gain coverage through the ACA. The number who have gained Medicaid coverage as of 2017 is 17 million, according to an HHS report, close to the CBO’s projection of 16 million. But whereas 23 million were projected to be covered by plans in the ACA marketplaces, the actual number is 12.2 million, according to a CMS release.

The pending legislation was opposed by every major hospital advocacy group.

“We opposed this bill because it puts coverage in jeopardy for many Americans—particularly for sicker patients, including those with major illness because of a preexisting condition,” said Richard Pollack, president and CEO of the American Hospital Association (AHA). “The House bill simply is not consistent with our deeply held principles of providing coverage for all who need it and ensuring that the most vulnerable are not left behind.”

“It’s unclear what the next steps” will be for the bill as it moves through the Senate, Pollack said May 24 at Citi’s annual not-for-profit healthcare investor conference, but AHA has urged that chamber “to reset the discussion.”

The AHCA is focused on the extent of private and Medicaid insurance coverage that the federal government should fund, whereas the need to move away from fee-for-service payment seems beyond dispute, Pollack noted.

“The interesting thing is that improving the healthcare delivery system has not been a part of the ACA debate,” Pollack said. “No one is talking about repealing value-based purchasing, accountable care organizations, medical homes, bundling, or gainsharing, for example. Initiatives like those enjoy bipartisan support.”

Despite the expectation that healthcare reform will not affect the shift to value-based payment, some hospitals and health systems have slowed their shift amid the uncertainty. That uncertainty includes confusion over whether the Trump administration supports mandatory bundled payments.

“They’re concluding it’s safe to keep postponing preparations for value-based care,” said Joseph J. Fifer, president and CEO of HFMA.

Industry analysts acknowledged the complexity that the legislation has spawned.                   

“The potential repeal of the [ACA] has added a new layer of uncertainty to the existing one, while providers continue to seek ways to manage through a period of significant change while shifting to value-based care,” said Michael Corbat, CEO of Citigroup.

Analysts’ View

Debt analysts said the AHCA made them more hesitant to invest in not-for-profit hospitals in the 31 Medicaid expansion states and in states that use large provider taxes to fund Medicaid coverage.

Robin Fisher, vice president and research analyst for Franklin Templeton Investments, said providers in those states face the possibility that expanded Medicaid and its funding streams could be removed or changed.

“There’s clearly uncertainty in the market today” with the AHCA, Fisher said.

Jerry Solomon, a fixed-income portfolio manager for the Capital Group, said possible Medicaid changes have led his company to increase scrutiny on hospitals and health systems.

“The states are a really important part of it now because you have an administration in Washington that seems to be an open door for waivers for the Medicaid program,” Solomon said. “That’s clearly something we’re thinking about now in terms of what waivers have been submitted by governors.”

He cited a projection that one such waiver would lead 100,000 Medicaid enrollees to lose coverage over the next five years.

“That’s obviously something we’re thinking about,” Solomon said. “But we’re still investing in hospital and healthcare systems—probably with a little bit more scrutiny right now.”

Other analysts warned the healthcare industry not to make assumptions about the shape of any final legislation that overhauls the ACA.

Healthcare reform “never quite comes to fruition the way we think it will,” said Bryce Pickering, managing director and head of high-yield trading for Citigroup.

The Overriding Approach

Whatever the specifics, the legislation is likely to follow the Trump administration’s push to reduce federal healthcare spending, Pickering said. Such an effort will increase the importance to investors of high-quality management teams at health systems.

“It becomes really important to rely on strong management teams, and you will see investors asking more questions, looking for systems and teams that deliver what they say they will deliver when they say they’ll deliver,” Pickering said. “Those qualitative factors become really important when you start to think about how reform will play out over time.”

Another important filter through which to view the AHCA’s financial impacts on hospitals is the extended time frame involved.

“A lot of stuff isn’t going to be implemented for several more years,” Solomon said. “This is not a Sept. 30, 2017, impact where 22 million people are going to lose insurance. The Medicaid expansion may stop, but if they leave people on the Medicaid rolls for three or four years, over time there will be less and less people on Medicaid. So it’s not something we think about in the longer term, but it’s not something that we’re getting ready for” immediately.

The CBO concluded that the AHCA will cause the number of people with insurance to decrease by 14 million in 2018, with the reductions then ramping up over several years.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Wednesday, May 24, 2017