Fitch: US Hospitals Refine ACA Strategy after Promising Results

<0> Fitch: US Hospitals Refine ACA Strategy after Promising Results </0>

Fitch RatingsMegan Neuburger, CFASenior Director+1 212 908-0501Fitch Ratings, Inc.33 Whitehall StreetNew York, NY 10004orKellie Geressy-NilsenSenior DirectorFitch Wire+1 212 908-9123orMedia Relations:Brian Bertsch, +1-212-908-0549 (New York)

The for-profit hospital industry's approach to capturing the benefit of coverage expansion contained in the Affordable Care Act appears to work in the first half of 2014, according to Fitch Ratings. We expect companies to follow the same basic approach in 2015, but to expand and fine tune patient outreach efforts to maximize enrollment in health insurance exchange plans and expanded state Medicaid programs.

Operating results through the first half of 2014 indicate the coverage expansion mechanisms of the ACA are reaping benefits for acute care hospitals. Hospital companies reported a drop in the volume of uninsured patients. While this effect was particularly dramatic in the states the opted into expansion of Medicaid programs, it occurred to a lesser extent in non-expansion states as well, indicating that enrollment in health insurance exchange products is also reducing the ranks of the uninsured. The financial headwind of caring for uninsured patients has lessened, evidenced by markedly lower adjusted bad debt expense for large hospital companies.

The 2015 open enrollment period for the health insurance exchanges begins Nov. 15. Nearly 7.3 million people enrolled in exchange plans during the first open enrollment period. There is reason to expect this number will grow because the financial penalty for not having health insurance coverage ramps up in the second year of the program. Based on the strong uptake and positive operating effects so far in 2014, Fitch expects hospital companies to at least maintain, if not expand, their presence in exchange plan networks in 2015.

Hospital companies will begin reporting 3Q14 results in the next several weeks. The upcoming reporting period will be telling in several areas, only one of which is the sustainability of the ACA's influence. Organic patient volume growth improved markedly in 2Q14, and most companies attributed about one-third of the result to the ACA, with improved economic conditions and management initiatives also playing a role. Posting a second consecutive quarter of generally positive results would indicate that the industry's efforts to manage secular headwinds to growth sector are gaining traction.

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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 . All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research: Hospitals' Credit Diagnosis (Better Performance Reflects ACA Benefit, Economic Improvement)

2014 Outlook: U.S. Healthcare -- Secular Challenges Require a Compelling Value Proposition

U.S. Leveraged Finance Spotlight Series - HCA Holdings, Inc.

The Affordable Care Act and Healthcare Providers (Assessing the Potential Impact)

High-Yield Healthcare Checkup: Comprehensive Analysis of High-Yield U.S. Healthcare Companies

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

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