Fitch: Hospital Providers' 2011 Results Benefited from Electronic Health Record Incentive Payments

NEW YORK--(BUSINESS WIRE)-- According to a Fitch Ratings report, all of the companies in the Fitch-rated group of for-profit hospital providers benefited from government funded electronic health record (EHR) incentive payments during 2011. HCA received the highest amount of cash payments, with $306 million in cash incentive payments in 2011. In addition, all the Fitch-rated companies except Universal Health Services (UHS) saw some boost to EBITDA as a result of the recognition of EHR incentive payment income during the year.

Fitch expects most companies to recognize higher amounts of EHR incentive payment income in 2012, with the highest amounts for most companies likely in 2013 ? 2014. It is difficult to estimate the EHR incentive payments each program participant will be able to capture, but some companies could collect hundreds of millions of dollars over the life of the program.

The lifetime costs to implement and maintain EHR systems will likely outstrip the magnitude of the incentive payments for most hospitals. However, Fitch believes the net effect of incentive payments and EHR-related operating expenses will probably boost operating income in the 2013 ? 2015 timeframe.

Since the incentive payments are not meant to reimburse hospitals for the cost of implementing and maintaining EHR systems, the timing and magnitude of the payments are not expected to be closely correlated with EHR-related costs. In many instances hospitals probably would have undertaken EHR implementation and incurred at least a portion of the related costs regardless of the incentive program.

Companies will see a boost to operating income and cash from operations as a result of the incentive payments. In 2011, all the companies in the Fitch-rated group received some amount of cash EHR payments, ranging from a high of $306 million for HCA to $11 million for UHS.

In addition, all the companies except UHS saw some boost to EBITDA as a result of the recognition of EHR-related income during the year. When EHR income is excluded from EBITDA, HCA and CHS would have experienced flat growth in EBITDA; Tenet and LifePoint Hospitals, Inc. would have seen growth more than cut in half; and Health Management Associates, Inc. would have experienced 6.7% growth versus the very robust 12% growth it reported.

The Electronic Health Records (EHR) Program was created as a part of the American Reinvestment and Recovery Act (ARRA) of 2009. The legislation earmarked $20 billion in incentive payments for providers that adopt and demonstrate meaningful use of EHRs beginning in federal fiscal year (FFY) 2011.

The full report, 'For Profit Hospital Insights: Electronic Health Record Incentive Payments', includes a review of 2011 incentive payments by company and is available at 'www.fitchratings.com.'

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'For-Profit Hospital Quarterly Diagnosis: Third Quarter 2011' (Jan 9, 2012);

--'2012 Outlook: U.S. Healthcare' (Dec. 7, 2011);

--'For-Profit Hospital Insights: Changes in Bad Debt Reporting Will Improve Disclosure' (July 26, 2011);

--'For-Profit Hospital Insights: A Review of Bad Debt Accounting Policies and Practices' (June 8, 2011).

Applicable Criteria and Related Research: For-Profit Hospital Insights: Electronic Health Record Incentive Payments

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=673291

Fitch's For-Profit Hospital Quarterly Diagnosis Third Quarter 2010

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=581465

2012 Outlook: U.S. Healthcare -- Accelerating Regulatory and Fiscal Challenges

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659178

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KEYWORDS:   United States  North America  New York

INDUSTRY KEYWORDS:   Health  Hospitals

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