Investors should keep a close eye on healthcare, as a little-known element of the Affordable Care Act could leave some hospitals strapped for cash.
The ACA allows Medicare to adjust reimbursements based on workers’ productivity, meaning reimbursement rates decrease as productivity grows in the economy, according to an article from The Wall Street Journal.
The Congressional Budget Office projected (PDF) that this piece of the law would cause reimbursement rates to grow at 2.2% each year between 2012 and 2025, a decrease from 3% growth.
These changes could hurt the bottom line for hospitals. Although the consumer-price index for medical care has been slowing, it has grown by an average of 2.9% over the past five years, according to WSJ. A lengthy window of costs rising faster than reimbursement would widen the gap between revenue and cost.
In general, Medicare already pays less in reimbursement than commercial insurers. The CBO report suggests that if the reimbursement changes stick, the number of hospitals unable to turn a profit could reach 60% by 2025.
WSJ’s analysis did note, however, that this grim outlook did not take into account increased cost efficiency at hospitals. It also noted that the political climate, as the GOP continues to push for a repeal of the ACA, leaves plenty up in the air.
“The good news for investors is that most hospitals aren’t for-profit and few have publicly traded shares,” according to the article. “But the impact of financial pressure still could be significant.”
Also worth considering is the impact that the industry’s ongoing consolidation can have; Tenet Healthcare, for instance, is looking to divest its hospital portfolio.
HENRY KOTULA 