3 big healthcare finance stories in 2016 and what the future holds

FierceHealthFinance looks back at the significant events of 2016 and what might be in store for 2017.

It's been an interesting year in healthcare finance, to say the least. The hospital sector entered the year in perhaps the most stable fiscal position it has enjoyed since the start of the Great Recession nearly a decade ago. Both Fitch Ratings and Moody's Investors Service had declared in 2016 that the worst of that period for nonprofit hospitals was now in the rearview mirror.

Near the end of 2016, the opportunity for the sector to further capitalize on and consolidate those gains in terms of growth and stability were completely and totally upended with the election of Donald J. Trump as the 45th president of the United States.

One of Trump's campaign promises was to repeal and replace the Affordable Care Act with “something terrific.” However, he has since backed off on repealing some of the more politically popular portions of the reform law, such as denying coverage to individuals with pre-existing conditions or allowing children to remain on their parents' policies until they reach the age of 26.

But the sections of the ACA that most benefit hospitals—such as the expansion of Medicaid eligibility, which is currently being enjoyed in 32 states—remains up in the air.

That is the backdrop of U.S. healthcare finance heading into 2017. But what were the significant events of 2016? Let's take a look.

The election shock and its impact on the for-profits and bonds

The election of Donald Trump sent immediate shockwaves through the entire hospital sector. For-profit hospitals were hit particularly hard. Dallas-based Tenet Healthcare, one of the more financially precarious of the for-profit hospital chains, had had relatively stable stock pricing for much of 2016. It started the year at around $29 a share, and pretty much hewed to that price until August, before declining to about $20 a share on election day. It promptly plummeted 25% on Nov. 9, The Motley Fool reported, and is down an astounding 50% for the year.

Community Health Systems has fared even worse. It entered 2016 trading at around $22 a share, its price declining to around $10 a share in late October as it struggled with debt issues and the sales of some of its properties. Now it's around $5 a share, an 80% drop since the start of the year.

The more profitable HCA Holdings has fared better, but only marginally. It entered 2016 priced around $66 a share, but rose to close to $82 a share in late October after polling data suggested Hillary Clinton would become the next president. Its price dropped 10% after Election Day. While it's up about 8% for the year, that's a far cry from the nearly 40% bump it had enjoyed in early autumn.

Meanwhile, the bond market has also taken a beating, raising questions about whether the hospital sector will be able to raise enough money at low interest rates for capital improvement projects. The prior year was a boon for hospital bond issues.

M&A and the regulatory backlash

Edith Ramirez
Edith Ramirez

Hospital deals drew significant scrutiny from the Federal Trade Commission in late 2015 and early 2016 as concerns from regulators about how some mergers and acquisitions could impact market forces in some areas of the country. FTC Commissioner Edith Ramirez noted in a speech last spring that "competition plays an important role with respect to quality as hospitals compete to attract patients," and that she was "very concerned about the rapid rate of consolidation among healthcare providers."

The FTC took action against several mergers over the past year or so, including Cabell Huntington Hospital's proposed purchase of 393-bed St. Mary's Medical Center in West Virginia and Advocate Health Care and NorthShore University HealthSystem's merger in Chicago. Both deals are still being litigated. PinnacleHealth and Penn State Health's pending merger in Pennsylvania was scuttled by the agency.

How the FTC pursues such dealmaking under the Trump administration remains to be seen.

Big pharma and the public backlash

The pharmaceutical industry and its financial practices also drew significant scrutiny—and backlash—in 2016.

Hospitals say they have been struggling to hold the line against ever-increasing pharmaceutical prices. Beaumont Health in Michigan said it was seeing cost increases of as much as $20 million a year on drugs alone, and approached $300 million this year. “Last year was just intensified and much larger than in the past,” said Kathy Pawlicki, vice president of the Beaumont system's pharmacy services.

Mylan drew scrutiny for its pricing practices after acquiring the rights to the EpiPen about a decade ago. Back then, a single EpiPen cost $50. The same EpiPen now retails for about $300 a unit. After drawing criticism for the price increases, Mylan decided to introduce a “generic” version of its own product for $150 a unit—still triple the price from a decade ago.

Mylan is not the only drug company coming under scrutiny for such pricing practices. Both Valeant Pharmaceuticals and Turing Pharmaceuticals have also drawn fire for dramatic price increases for drugs that have been on the market for years, if not decades.

What 2017 might hold

The year 2017 is completely unpredictable for hospital finance. With an incoming Trump administration, its appointees both seemingly hostile to the ACA and willing to work within its confines (Seema Verma, picked by Trump to head the Centers for Medicare & Medicaid Services, helped worked out a compromise for Medicaid expansion in Indiana), anything can happen.

The American Hospital Association appears to sense that. In a letter sent to Trump by AHA Chief Executive Officer Richard Pollack, he curiously referred to the ACA in the past tense: “The ACA...while in need of reform, provided insurance coverage to more than 20 million previously uninsured individuals." He then asked Trump to make only minor changes at the edges of the existing reforms.