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Moody's: Obama's Win Is Neutral for Nonprofit Hospitals, But Challenges Remain

CHICAGO – The re-election of President Barack Obama will have little credit impact on nonprofit hospitals, but looming federal actions tied to the new health care law and deficit-reduction talks pose major challenges, Moody’s Investors Service said Wednesday.

On the positive side, Obama’s win means the near-certain survival of the individual mandate provision in the Patient Protection Affordable Care Act, set to take effect in 2014.  The mandate, which requires Americans to buy insurance and will mean a major expansion in insurance coverage, is the most positive feature of the new law for nonprofit hospitals, according to Moody’s.

Overall, however, the law is negative for the sector, due largely to reduced reimbursement, new payment models, and increased regulation, Moody’s said.

“Overall, while expanded coverage should result in a material reduction in the uncompensated care provided by not-for-profit hospitals, it will not offset other reimbursement reductions mandated under health care reform,” analyst Brad Spielman said in the report, titled Re-Election of President Barack Obama is Credit Neutral for Not-for-Profit Hospitals. “Given the scope of the federal deficit, we expect payment pressures to continue to be pronounced.” 

The changing federal landscape brings great uncertainty to the sector, Moody’s said.

“In all events, significant ambiguity remains as to the future of federal health care policy given the scope of the federal deficit,” the report said. “This uncertainty continues to heighten credit risk in an already pressured operating environment.”

Sequestration, if it goes into effect Jan. 1, 2013, would trigger $11 billion of Medicare cuts and cuts to several other new health care programs. A deal to avoid sequestration will likely still present deep cuts for the sector, as health care overall accounts for nearly 18% of U.S. gross domestic product as of 2010, according to Moody’s and other health care experts.

“Given the scope of the federal budget deficit, policymakers, regulators, and the health care industry will experience pressure to find ways to reduce overall health care spending,” Spielman wrote. “The need for reductions will continue to place considerable pressure on reimbursement.”

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