A bill Massachusetts Gov. Deval Patrick signed Monday limiting increases in health care costs to the pace of growth in the state’s economy is a credit negative to the state’s hospitals, according to Moody’s Investors Service.
“It will limit their revenue growth and reduce their operating flexibility,” Moody’s said
The bill, which the state legislature passed last week, limits the initial growth rate of health care spending to the potential growth rate of the state economy through 2017. Its final version, however, omitted a so-called luxury tax on the most expensive hospitals, which the House had proposed.
After 2017, the spending limit will fall to the state’s gross domestic product less half a percentage point. That would cut health-care spending increases by almost half, to 3.6% in 2013 from the current 6% to 7%, according to Moody’s.
Officials consider the bill an adjunct to the universal health care law that then-Gov. Mitt Romney signed in 2006.
“I think it’s a very big deal,” Steward Health Care System chief executive Ralph de la Torre said at a State House press conference. The immediate challenge, according to de la Torre, “is figuring out how to contain costs so that it doesn’t impact businesses and society in general.” Boston-based Steward is Massachusetts’ second-largest hospital network.
The bill establishes a commission that will study how market share and other factors affect health costs. It can order hospitals that miss cost-reduction benchmarks to file an improvement plan, but it cannot tax or otherwise punish hospitals.
Hospitals that cannot quickly adapt to the new models will likely lose revenues, according to Moody’s.
“Given that payment models have not yet been defined, it is too early to estimate the revenue impact,” the rating agency said.
“Another negative credit effect of the bill is that the state will use an excise tax on insurers to support smaller and less profitable hospitals, potentially allowing them to remain in business longer than would otherwise be possible and limiting the ability of larger systems to consolidate and grow through,” Moody’s added.
According to a Moody’s spokesman, the agency rates 15 nonprofit hospitals overall in the Bay State. Average and debt weighted ratings are Baa1.
Moody’s rates Massachusetts’ general obligation bonds Aa1. Fitch Ratings and Standard & Poor’s each assign equivalent AA-plus ratings.
