August 30, 2017 / 1:29 PM / a year ago

Fitch: Post-Acute Healthcare Shaken by Regulatory Announcements Despite ACA Inaction

(The following statement was released by the rating agency) NEW YORK, August 30 (Fitch) Washington, D.C. remains the driver of outlooks across the healthcare provider spectrum albeit through regulatory changes rather than larger efforts to repeal and/or replace the Affordable Care Act, according to Fitch Ratings. Recent announcements by The Centers for Medicare & Medicaid Services (CMS) would reduce the regulatory and financial burdens (including reporting complexities) that bundled payments (bundles) presented to providers. These announcements will allow for more flexibility in choice of care settings albeit at the expense of some of the catalysts driving coordination and risk-sharing amongst providers. Credit implications from the announcements have ranged from volume winners to mixed to volume and share of expenditure givers. Ambulatory surgery centers (ASCs) should see volume growth and skilled nursing operators (SNFs) should see a volume headwind temper. Meanwhile general acute hospitals will see some volume loss to ASCs offset by a reprieve from the compliance and risk-sharing elements of bundles. Home-health operators will be negatively affected by the bundle changes, which remove a previous catalyst for volume gains, and a separate announcement that may reset rates. Over the long term, Fitch continues to expect that financial constraints and demographic-driven demand will be powerful motivators to shift care to the lower cost settings of providers with the financial resources to risk-share and coordinate with operators in other settings. CMS proposed removing total knee replacements from the inpatient-only list for 2018 and also requested comments on whether total hip and partial hip replacements should also be removed from the list. This would be another win for ASCs, as adding knee and hip replacements gives them access to roughly $7 billion in annual Medicare spend. The proposal may also help to alleviate some of the recent volume pressures ASC operators have been experiencing as commercial-insured patients delay surgeries due to high deductible plans but will accelerate the existing admissions issues at general acute care hospitals. General acute care and SNFs received a reprieve from one of their operating headwinds when CMS took more definitive steps to pause bundled payment initiatives. Bundles were structured to lower aggregate payments by incentivizing coordination and risk-sharing amongst providers by paying for episodes of care rather than individual components and had led to some care occurring at lower cost settings such as home health. CMS' announcement will narrow the number of mandatory markets for the joint replacement bundle, allow for voluntary participation in the remaining markets and low volume/rural hospitals in all areas and will cancel the cardiac bundles that were scheduled to begin. These actions when coupled with Secretary Price's intimations indicate alternative payment models will not be as meaningful a portion of Medicare payments as the previous Administration aspired that they would be. Smaller bundles in terms of both scale and scope are a short-term credit positive, on the margin, for general acute care, SNFs and their REIT landlords. However, this does not change Fitch's view that SNF revenues and operating margins will still be pressured by remaining headwinds such as the growth in Medicare Advantage (i.e. shorter stays and lower rates), Department of Justice investigations into billing practices and wage inflation. Fitch will monitor the extent to which providers continue to use partnerships, joint ventures and other means of coordination given the existing investments even in the absence of government catalysts. Contact: Britton Costa, CFA Senior Director +1-212-908-0524 Fitch Ratings 33 Whitehall St New York, NY 10004 Caitlin Blalock Associate Director +1-512-215-3732 Megan Neuburger, CFA Managing Director +1-212-908-0501 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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