NEW YORK - The three most likely outcomes of the U.S. Supreme Court's review of the constitutionality of federal healthcare reform would have neutral or negative implications for the credit ratings of U.S. not-for-profit hospitals and healthcare systems, says Moody's Investors Service in a report.
The report, "US Supreme Court's Pending Decision on Healthcare Reform: Credit Implications for Not-for-Profit Hospitals," analyzes the three most likely outcomes of the court's review of the 2010 Patient Protection and Affordable Care Act (PPACA) in terms of their likely effects on the not-for-profit health sector.
Those possible outcomes include upholding the law as a whole; a court finding that the law's mandate that individuals purchase health insurance is struck down while other provisions are retained; and a third possible scenario in which the justices find that the mandate is unconstitutional and that the law cannot stand without it, striking down the entire law.
"If the court decides that the law as a whole is constitutional, we would view the ruling itself as a credit neutral event as not-for-profit hospitals have been preparing to operate within the full provisions of the law since its passage in April 2010," said Moody's Mark Pascaris, author of the report. "Since its passage, we have viewed healthcare reform as a net credit negative because it mandates annual Medicare reimbursement reductions to hospitals, which outweigh the benefits of lower rates of uncompensated care."
If the individual mandate is struck down but the court upholds other provisions of PPACA, it would be a clear negative for the not-for-profit healthcare sector, according to Moody's. "Without the individual mandate -- which we consider the most credit positive feature of healthcare reform for not-for-profit hospitals -- the number of uninsured Americans will remain high," said Pascaris. "This will result in continued growth in uncompensated care provided by hospitals while Medicare reimbursement rate increases would decelerate."
Finally, it would also be credit negative, says Moody's, if the court finds the individual mandate unconstitutional and not severable from the rest of the law, effectively striking down healthcare reform. "The resulting absence of legislative and regulatory framework for curtailing unsustainable Medicare spending creates substantial new uncertainties and is credit negative for the sector," said Pascaris. "Combined with economic weakness, high unemployment, and the erosion of healthcare coverage offered by employers, the net result could be material pressure on not-for-profit hospital operating margins."