Health care reform has been seen as a benefit for hospitals because it increases the number of patients and decreases the number of uninsured patients.
However, the benefit for hospitals could be overblown. First, the expansion of insurance is accompanied by Medicare rate cuts:
We estimate that the proposed Medicare spending cuts (productivity adjustment and other cuts) and DSH reduction would be more than offset by the potential benefit from the reduction of the uninsured, but the net impact would be modest. Our analysis shows that hospitals would see a net benefit of about $37 billion from Reform over the 10 year period 2010-2019. Clearly a positive, but spread out over 10 years, across 5,000 hospitals with cuts beginning in 2010 and little benefit before 2014, it is not a reason to simply “own the group” – especially given that in 2019, the pick up in uncompensated care is offset by the rate cuts.
Second, the cost of treating the uninsured was overstated in the first place:
While the average hospital company bad debt in 3Q10 increased $13.1mm y/y, based on our metric, the cost of uncompensated care increased only $4.1mm, indicating that the headwind from the uncompensated care is overstated by a factor of about 3x if we just look at the bad debt numbers.
Still, BoA/Merrill says reform will be a “modest positive” for hospitals — largely because it will improve market perception.
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