GOP health bill would be credit negative for most US healthcare companies, Moody's says

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Moody's Investors Service said it expects the current draft of Republicans' ACA replacement plan would be credit negative for for-profit hospitals, pharmaceutical and medical device companies.

Here are six things to know.

1. Moody's attributed the negative credit rating to the Congressional Budget Office's projections of an increase in the number of uninsured people as well as an expected decline in federal Medicaid spending. Still, the ratings agency said it expects most effects of these projections would not actualize until 2020 when the most significant proposed changes would occur.

"The proposed changes to the individual insurance market would be modestly credit negative for healthcare companies over the next year or so, as some people choose to forgo health insurance," Moody's Senior Vice President, Jessica Gladstone, said in a news release. "But from 2020, the proposed law, if enacted, would be increasingly credit negative because healthcare coverage would become less affordable for more people — particularly older Americans — resulting in a larger uninsured population and a greater reduction in demand."

2. Moody's estimates a rise in the number of Americans without coverage would result in less demand for healthcare and increased uncompensated care at hospitals. "The costs of providing urgent care to the uninsured would fall on hospitals, increasing bad debt expense," the ratings agency said.

3. Because medical device companies' largest customers are hospitals, they would be indirectly affected, as would pharmaceutical companies, Moody's said.

4. In the near term, hospitals in states that did not expand Medicaid under the ACA would receive additional funding triggered by the AHCA, Ms. Gladstone said. For instance, she said the AHCA calls for additional "safety net" funding to assist nonexpansion states in caring for people without coverage.

5. However, beginning in 2020, Medicaid funding would be cut significantly under the AHCA, Moody's said. "The cuts are large — $880 billion from 2017-2026 according to the CBO. This would negatively affect hospitals as well as medical device and pharmaceutical companies," the ratings agency added.

6. Moody's expects the repeal of industry taxes scheduled for 2018 "would modestly benefit pharmaceutical companies and medical device makers."

 

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