Moody's: Hospitals Will See "Eroding Profits" in Move to New Payment Models

For-profit and nonprofit hospitals face growing risks to their bottom lines over the next several years as they complete the transition from a fee-for-service system to a value-based payment system, according to a report from Moody's Investors Service.

One of the central tenets of healthcare reform, and President Barack Obama's Patient Protection and Affordable Care Act, is changing how providers are paid to deliver care. Value-based purchasing, bundled payments, capitated payments and shared savings programs in accountable care organizations are the new, evolving reimbursement models for hospitals and health systems.

The organizations that will succeed the most in the transition, Moody's analysts said, will be larger hospital systems "strongly aligned with their medical staffs." For example, Moody's pointed to the integration efforts of Rochester, Minn.-based Mayo Clinic, Danville, Pa.-based Geisinger Health System and Salt Lake City-based Intermountain Healthcare.

Moody's said small, nonprofit, standalone hospitals "will be at greater risk" for financial troubles under these reimbursement models.

"Hospitals will be in danger of eroding profits as they straddle two types of reimbursement systems: the current model, which incentivizes healthcare providers to use more services, and new models that emphasize value," said Diana Lee, Moody's vice president and senior credit officer, in a news release.

The report also said medical device companies stand to lose the most in the shift to value-based care, as hospitals and health insurers are looking to reduce admissions and procedure volumes — the lifeblood of medical device companies' success. Health insurers are positioned to benefit the most, Moody's said, because they will now be able to share more financial risks with providers.

More Articles on Moody's Reports:
Moody's: Tenet-Vanguard Merger Will Hurt Nonprofit Hospitals
Moody's: Longer Medicare Solvency Good News for Nonprofit Hospitals
Moody's: Medi-Cal Cuts Credit Negative for Hospitals

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