Moody's: New Boston-Area Contracts Credit Negative, Oklahoma Provider Fees Positive

Moody's Investors Service's recent "Weekly Credit Outlook: U.S. Public Finance Edition" covered several specific developments in the non-profit hospital sector.

Boston hospitals and health insurers mixed up the scene in January as two major reimbursement contracts were finalized. On Jan. 19, Partners HealthCare and health insurer Tufts Health Plan signed a new deal, and a few days later, Children's Hospital Boston and Blue Cross Blue Shield of Massachusetts signed a three-year "Alternative Quality Contract."

Partners and Tufts expect to save $105 million over the life of the new contract, while Children's Hospital Boston became the first pediatric-only hospital to sign an AQC, which is a modified global payment model.

Both deals involved modest or no rate increases for the hospitals, and Moody's rated the new agreements as a credit negative for those hospitals. Moody's said the contracts reduce hospital reimbursement to the rate of inflation or lower, and they also "highlight a broader trend in the state where hospitals can lose money if they exceed cost-of-care targets through global payment provisions," according to the report.

Moody's also suggested Partners' and Children's Hospital Boston's agreements are a credit negative for other hospitals in Massachusetts as the state enters into a new era of scrutinized cost control, which could make it difficult for other hospitals to gain significant reimbursement increases from insurers.

Also in January, CMS approved Oklahoma's hospital provider fee application, which will assess a 2.5 percent fee on the net patient revenues of state hospitals in order to provide additional federal funding to offset Medicaid losses. Moody's rated CMS' approval, which will lead to increased Medicaid payments, as a credit positive for Oklahoma hospitals.

Several other states have CMS-approved hospital provider fee programs, and Oklahoma estimates the new program will bring in an additional $340 million in Medicaid funding for hospitals in the state.

Related Articles on Moody's Ratings:

Moody's: 4 Reasons 2012 Will Be Financially Challenging for Non-Profit Hospitals

Moody's: Outlook for Non-Profit Healthcare Stays Negative for 2012

Moody's Downgrades West Penn Allegheny's Bond Rating to Caa1

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