Mixed credit impact from healthcare reform-Moody's

NEW YORK, March 22 (Reuters) - U.S. President Barack Obama's healthcare overhaul will be neutral to modestly positive for for-profit hospitals' credit profile but mildly negative for pharmaceutical and medical device companies, Moody's Investors Service said on Monday.

The overhaul will also be negative for not-for-profit hospitals, triggering spending cuts and mergers, credit rating agency Moody's said in a report.

Democrats in the U.S. House of Representatives approved a $940 billion healthcare overhaul on Sunday, forwarding some finishing touches to the Senate for consideration later this week. The legislation aims to extend coverage to 32 million uninsured people. For details see [ID:nN21150355].

Over the next three years, most hospitals should be able to navigate health care reform relatively unscathed as many key provisions do not start until 2014, Moody's said.

In the longer term, both for-profit and not-for-profit hospitals and health systems will benefit from reduced charity care write-offs and bad debt expense as the number of uninsured in the United States decreases significantly, Moody's said.

"However, as governmental auditing and oversight of revenue are tightened, hospitals will be pressured to operate more efficiently, forcing spending cuts and mergers among smaller hospitals after 2014 and implementation of many key provisions," Moody's said.

Larger, for-profit hospitals will be better equipped to meet these challenges because of their diversity and scale and because they generally face fewer labor and pension issues, Moody's said.

Many stand-alone not-for-profit community hospitals, however, will have difficulty dealing with constraints on reimbursements, prompting more consolidation, Moody's said.

The legislation carries other long-term risks because of its impact on all hospital revenue streams, Moody's said.

For example, Medicare reimbursement will be trimmed by $155 billion over 10 years and efficiency provisions could lead to additional Medicare cuts for high-cost, less efficient hospitals in high-cost markets, Moody's said.

"We also expect hospitals will face more difficult negotiations with commercial and managed care insurers who themselves face increased scrutiny and fees and are most affected by sweeping changes in the legislation," Moody's said.

However, some provisions will be favorable for hospitals in the long term, including reduced charity care as more patients are covered by insurance and Medicaid eligibility is expanded, Moody's said.

The bill will have mildly negative impacts on the pharmaceutical industry as new levies offset the benefit of expanded insurance coverage, which will raise prescription drug volumes, Moody's said.

"Longer term, additional cost containment for pharmaceutical spending is likely, especially if other areas of healthcare spending prove difficult to contain," Moody's said.

Fees on the medical device sector will also be negative for credit quality, though most companies should be able to absorb them by cost-cutting, Moody's said.

"Longer term, comparative effectiveness initiatives will raise the sector's risk profile if coverage is linked to outcomes and more winners and losers emerge," Moody's said. "Any benefits from increases in admissions and higher use rates by expanding coverage remain unclear." (Reporting by Dena Aubin, Editing by W Simon )