CHICAGO — Nonprofit health care providers could see a drop in patient volume as the sector adjusts to a business model that emphasizes keeping people out of hospitals as a result of the new federal health care law, Standard & Poor’s analysts said here Monday during the agency’s Health Care and Transportation Ratings roundtable.

“We are at the front edge of a restructuring of the sector’s business model and volume is where it’s starting to show itself,” said analyst Martin Arrick. “It feels like there’s going to be a real shake-up in the industry in the two to five years if reform moves ahead as planned.”

The law’s emphasis on preventative care and shedding the current fee-for-service model will mean big changes for providers. Hospitals already grappling with record-low volumes due to the recession may need to view flat volume trends as the new normal, analysts said.

“Health care admissions are not as recession-resistant as we thought. People really do stop going to the hospital when they don’t have money,” Arrick said. Some providers have seen 5% to 10% declines, he added.

The good news is that the sector will likely continue to enjoy stabilized fiscal measures that have buoyed providers throughout 2010, Standard & Poor’s said. Providers roiled by market and economic disruptions since 2008 have responded by cutting costs, restructuring risky debt portfolios, and enacting measures that have boosted operating performance and stabilized finances, analysts said.

Like Fitch Ratings and Moody’s Investors Service, Standard & Poor’s said it expects improved operating performance to continue throughout 2011.

But as reform moves closer to reality, hospitals will need to prepare for sweeping business-model changes that are already beginning to “bubble up with increasing pressure,” Arrick said.

The new business model will grow out of the several programs proposed but not yet required in the new law. Most of the programs will be in the pilot phase for the next few years and emphasize preventative care and a shift away from the current one-fee-for-one-service payment model.

The programs emphasize reimbursement tied to clinical quality, wellness and preventative care, and bundling, or charging for one episode of care as opposed to each service.

“This series of fairly small items are all geared at moving people away from a fee-for-service model and flipping the model to keep people out of the hospital,” Arrick said. “It could be very positive for the people in this country; however, it’s not clear if it will be positive for the providers.”

Reimbursement changes pose another challenge to providers adjusting to the law, analysts said. Hospitals face the prospect of reimbursement cutbacks from Medicaid, Medicare, and private insurers grappling with their own shifting business models.

Additional cuts in state-funded Medicaid programs also loom as states grapple with their own host of credit challenges heading into the “post-stimulus environment” in 2012, said analyst Robin Prunty.

Medicaid is currently one of states’ biggest budget items — taking up an average of 21% of their budgets — and will expand under the new law. “States will play a very significant role in implementing reform,” Prunty said.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.