Feb 21 - As consolidation in the healthcare industry continues its brisk
pace, the U.S. Supreme Court Tuesday bolstered the Federal Trade Commission's
(FTC) ability to obstruct hospital mergers. Fitch Ratings believes stricter
anti-trust action is a negative for investor owned hospitals as these companies
have recently been offsetting weak organic growth through hospital acquisitions.
The ruling stems from a long-fought government campaign intent on preventing
local monopolies to preserve competition in the marketplace.
A tougher stance by the FTC on hospital competition could have ramifications for
commercial health insurance rates paid to hospitals. Simply put, less industry
consolidation means decreased pricing power for hospitals. However, as most
companies in the for-profit hospital sector continue to produce a solid amount
of free cash flow, we continue to expect that companies will continue to
actively acquire hospitals. As we previously stated, acquired revenue and EBITDA
is helping to offset soft organic operating trends, and acquisitions clearly
remain a priority for cash deployment.
Some provisions of the Affordable Care Act favor larger, integrated healthcare
systems, like the Medicare payment reforms that include the Medicare Shared
Savings Program. While this has been encouraging hospital industry
consolidation, more stringent anti-trust pressure could dampen consolidation
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expressed are those of Fitch Ratings.