NEW YORK, June 14 No matter how the U.S. Supreme
Court decides on the national healthcare law, nonprofit
hospitals will face a rocky future, Moody's Investors Service
said in a study published on Thursday.
Within the next two weeks the highest court in the country
is expected to rule on the constitutionality of the healthcare
reform law, known as the Patient Protection and Affordable Care
Act, that has inspired both political and legal battles from the
moment President Barack Obama signed it into law more than two
"Regardless of the court's ruling and the result of the
November elections, policymakers will be faced with addressing
the steep federal budget deficit, which almost certainly will
include altering federal funding for Medicare and Medicaid,"
says the study.
The Wall Street rating agency has a negative outlook for
non-profit hospitals and expects rating dowgrades for the sector
to outpace upgrades this year. The median
average ratings for the 500 institutions in the sector is A3.
Moody's says that the total not-for-profit hospital bonds
outstanding is $155 billion.
All non-proft hospital bonds are considered expensive by
analysts who predict some price correction.
Daniel Berger, a senior market strategist for Thomson
Reuter's Municipal Market Data (MMD) published a study in May
predicting that the 10-year credit spread over the AAA yield
curve to increase by 30 basis points. That level closed at 136
basis points on Wedensday, up from around 127 basis points on
INDIVIDUAL MANDATE, THE BEST FEATURE
According to Moody's, the best possible outcome from the
Supreme Court would be a full confirmation of the law, dubbed
"Obamacare." That would be "credit neutral," the agency said.
However, the outlook on the sector will remain negative.
"Since its passage, we have viewed healthcare reform as a
net credit negative because it mandates annual Medicare
reimbursement reductions to hospitals, which outweigh the
benefits of lower rates of uncompensated care," Moody's said
Striking down the requirement that individuals purchase
health insurance while maintaining the rest of the law, or
throwing out the law entirely, however, would be a "credit
The law has been challenged by 26 states which contend the
so-called individual mandate is unconstitutional. But, Moody's
said, that feature is the most positive for not-for-profit
hospitals that tend to treat a higher proportion of the
"The number of uninsured Americans will remain high and
result in continued growth in uncompensated care...while
Medicare reimbursement rate increases would slow down," Moody's
said about nonprofits' conditions if only the mandate were
The pressure on revenue growth combined with increasing
uncompensated care could hurt their finances, it added.
States operate Medicare health programs for 49 million
seniors and Medicaid insurance for the poor with partial
reimbursements from the federal government, and nonprofit
hospitals rely heavily on those public dollars.
Medicare, which costs $549 billion a year, is set to exhaust
its trust fund in 2024, according to the federal government. The
healthcare law lowered the annual increases in Medicare payment
If the Supreme Court decides the entire healthcare law is
unconstitutional, then nonprofit hospitals will be pitched into
legal and regulatory uncertainty over "unsustainable Medicare
spending," Moody's said.
In this case the hospitals would "face the likelihood of
even larger federal funding cuts than those embedded in the law
and strikes an ominous tone for the not-for-profit healthcare