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Moody’s predicts winners & losers in Obama health reform

Moody’s, the credit rating agency, offers their post-election impressions in their special comment, "U.S. Healthcare Industry: Credit Implications of the U.S. Election."

Barack Obama’s campaign roughed out principles for health reform across three issue areas:

  • Access and affordable health care
  • Cost reduction
  • Public health

Moody’s took these as lenses over the state of health care in the U.S. to predict how these principles could play out in an Obama administration.

Promoting access to health care in the U.S. could be a positive for hospitals and medical device manufacturers, whose sheer volumes of patients would increase and uncompensated care and bad debt be reduced. On the downside, though, addressing cost containment through reducing reimbursement would be a negative for hospital finances. The net of lower payments coupled with higher volumes remains to be seen. Still, Moody’s says that the overall impact on hospitals, providers and clinical services will be generally credit positive.

A loser could be health insurers. While more enrollees would be covered, the government would regulate these markets more tightly and cut payments to insurers to fund the new health plan. If insurers negotiate tougher reimbursements in hospital agreements, this, too, would negatively impact hospitals’ top-lines. For health insurers and managed care, Moody expects the sector to score generally credit negative.

Pharmaceutical manufacturers who serve a high percentage of Medicare and Medicaid enrollees could be hard hit if the Federal government comes to negotiate drug prices directly with manufacturers the way governments in other countries already do. For drug companies, Moody’s scores the segment generally credit negative.

Jane’s Hot Points: The relatively positive expectation for health providers — hospitals and clinicians — should be tempered through the segment’s current challenges with bad debt and uncompensated care, along with difficult access to capital markets in the current credit-constrained environment. An Obama plan would take time to filter through the health system, putting hospitals fiscally further behind. So, I would still expect some short-term pain before a bit of relief.

For health plans, there’s already a negative mood among credit agencies. This outlook has to do with growing concerns about unemployment, which would reduce the rolls of the insureds among commercial plans’ big purchasers (Fortune 500s and mid-size private employers). Furthermore, the decline in financial markets has caused many health plan companies’ asset bases to erode. Adding health reforms that target the "rich" health plans to help pay for accessing new populations could further reduce plans’ bottom lines.

In this climate of redistribution of wealth-in-health, remember that one health segment’s revenues are another’s costs, at least to credit-rating agencies and Wall Street. From the viewpoint of public health, it’s a totally different story.

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