S&P: Massachusetts Health Law May Hurt Hospitals' Operating Margins

Massachusetts Gov. Deval Patrick signed a new healthcare cost containment bill in August, and hospitals may feel negative pressures on their operating margins as a consequence, according to a report from Standard & Poor's Ratings Services.

Under the law, hospitals in the state must limit spending increases to a rate that is no greater than the state's gross state product through 2017. After 2017, hospitals must keep spending a half percentage point below the GSP, or they could face a $500,000 penalty.

Although S&P analysts believe Massachusetts hospitals have been successful at cutting costs and implementing alternative payment models over the past few years, they may reach a plateau where it will be hard to reduce expenses further — which will impact margins and credit ratings.

"Standard & Poor's believes ratings will likely remain stable for at least the next year and [a] half as they have in the past following the implementation of healthcare reform legislation," according to the news release. "Over the longer term, however, Massachusetts providers could be at a disadvantage if they are unable to cut costs deeply or quickly enough to meet the law's requirements."

Moody's Investors Service issued a similar report in August, saying the legislation overall is a "credit negative" for Massachusetts hospitals because the law will "limit their revenue growth and reduce their operating flexibility."

More Articles on the Massachusetts Healthcare Law:

Moody's: New Massachusetts Law Will Hinder Hospitals' Revenue Growth

Massachusetts Governor to Sign Healthcare Spending Bill Today

Reduced Reimbursement Isn't "Reform," Says CEO of Massachusetts Hospital Assoc.

© Copyright ASC COMMUNICATIONS 2021. Interested in LINKING to or REPRINTING this content? View our policies by clicking here.