Moody’s Finds Reform Likelier To Hurt Smaller City Hospitals

CHICAGO — Smaller urban hospitals are especially vulnerable to fallout from cost-cutting measures that are certain to be part of a final health care reform bill now being debated by Congress, said Moody’s Investors Service.

Stand-alone hospitals located in expensive, urban areas are typically more dependent on high-cost Medicare reimbursements than other providers. It is those hospitals that likely will suffer the most from cuts — and possibly from downgrades — under federal reform that features Medicare cuts, Moody’s said.

Moody’s comment comes as the Senate prepares to debate a health care bill over the next several weeks. The House passed a bill Nov. 7. If the Senate passes a bill, the two chambers will craft a compromise plan that will then go to President Obama.

“The popular debate to date has been more around coverage, but the other piece of this is managing health care costs long term,” said analyst Mark Pascaris, who wrote the three-page report released Monday. “We’re still a long way off from talking about Medicare cuts to hospitals, but both the House and Senate bills have different ways of scaling back Medicare reimbursements.”

The impact of Medicare cuts could be particularly negative for high-cost urban hospitals, even if the number of insured patients grows, Pascaris said.

The cost of Medicare tends to be higher in urban areas where the cost of living is higher, and there is often more poverty and a greater presence of high-cost academic research hospitals. For this reason, hospitals located in these areas are more dependent on high-cost Medicare reimbursements, and will suffer more as lawmakers attempt to level the cost of care across the country, Moody’s said.

All but one of the 17 highest-cost health care regions are located in urban areas, according to a recent analysis by Dartmouth College cited in the Moody’s report.

Attempts to level health care costs across the country are likely going to mean cutting Medicare reimbursements, which could lead to downgrades for high-cost providers.

But not all hospitals located in high-cost areas will be hard hit. Those that are part of a multi-state system that have more resources to draw from, as well as those that stand to gain the most newly insured patients, will escape fallout from cuts, Moody’s said.

Pascaris added that a lot depends on the details of a final bill.

Are cuts “going to be a significant added risk factor for smaller, stand-alone hospitals? Maybe, maybe not,” he said. “Will it mean more consolidation for the industry? It’s still too early to tell.”

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