NEW YORK--(BUSINESS WIRE)--The for-profit hospital industry is well positioned with respect to the anticipated wave of mergers and acquisitions (M&A) amongst the largest for-profit health insurers, but consolidation could have some important longer term ramifications, according to Fitch Ratings.
M&A amongst health insurers is not likely to immediately result in outright price pressure for hospitals. In many markets, health insurers are already fairly consolidated and recent actions by hospitals to build market presence will shore up negotiating power. However, over the longer term it could have a negative effect on competition by smaller insurers in some markets. In addition, it could accelerate the nascent shift towards value based payments for hospitals and other healthcare providers if larger insurers find it financially beneficial to advance the use of these payment models.
The planned tie-up of Aetna and Humana could create the second largest national for-profit health insurer by revenue if approved by anti-trust regulators. The announcement of the merger comes on the back of some favorable developments for the hospital industry. Most importantly, the U.S. Supreme Court recently ruled that more than 6 million enrollees in the public health insurance exchange plans created by the Affordable Care Act (ACA) can keep the financial subsidies that make these plans more affordable. In part because of the ACA-related expansion of health insurance coverage, hospitals have recently experienced a marked improvement in organic operating trends, particularly in growth of volumes of patients.
Actions by hospital management teams to respond to certain challenges in the operating environment are also contributing to the industry's improved performance. These same activities are now encouraging consolidation by health insurers. Horizontal M&A activity amongst acute care hospitals to build bigger systems with more negotiating clout with payors has been a durable trend since the passage of the ACA in early 2010. More recently, hospitals have been expanding their presence in key geographies through acquisitions and financial partnerships in adjacent care delivery verticals as well as taking actions to improve financial alignment with physicians.
Hospital companies will begin reporting 2Q15 results later this month. Many of the trends supporting the industry's recently improved performance remain intact, so Fitch expects another quarter of decent results. However, volume growth in particular is likely to back-off the very strong results posted in the past couple quarters. The full report, "Hospitals' Credit Diagnosis: ACA Ruling Positive but Facing Insurer Consolidation Wave" is available at www.fitchratings.com. The report provides a summary of the quarterly operating performance and credit metrics of companies in the for-profit hospital sector, including detailed debt and organizational structure charts.
Additional information is available on www.fitchratings.com
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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