Hospitals are biggest losers in legal attack on Obamacare

epa04818368 Supporters of the Affordable Care Act cheer after the Supreme Court ruled that Obamacare tax credits can go to residents of any state, outside the Supreme Court in Washington, DC, USA, 25 June 2015. The US Supreme Court delivered a major victory for President Barack Obama's health care reforms on 25 June in a decision that upholds the subsidies at the heart of the insurance reforms. The court ruled 6-3 that language in the health care law was meant to allow consumers in all 50 US states to purchase health insurance with government subsidies. Supporters of the law had gathered outside the court and chanted, 'ACA is here to stay,' referring to the Affordable Care Act, as the decision was handed down. EPA/JIM LO SCALZO

 

Bloomberg

Obamacare is under legal attack again, and in the health-care industry it’s hospitals that have the most to lose.
A federal judge ruled on Thursday that subsidies for patients’ out-of-pocket costs may be illegal in President Barack Obama’s signature health-care law. Those subsidies are a key part of the law that helped millions of Americans afford health care. If the ruling is upheld by higher courts, billions of dollars in payments to hospitals would be at risk as insurance premiums and out-of-pocket medical costs rise. Unlike health insurers — which have pulled out of Obamacare in markets where they made losses — hospitals have no such option: They are stuck with unpaid bills.
“The hospitals are the ones that really stand to lose the most from any potential repeal of Obamacare,” said Jason McGorman, a Bloomberg Intelligence analyst who follows the industry. “They have to treat the patients no matter what.”
The Affordable Care Act has been under near-constant legal assault since it became law in 2010. While it will take months before the latest case is resolved by higher courts, shares of the top three biggest publicly traded hospital companies plunged Thursday in response to ruling.
Tenet Healthcare Corp. dropped 9.8 percent, Community Health Systems Inc. declined 11 percent, and HCA Holdings Inc., the largest U.S. for-profit hospital chain, fell 3.2 percent. The drops were a setback after a recovery in hospitals stocks this year following a slump in the second of half of 2015, partly due to concerns that benefits from Obamacare were waning.

Revenue at Risk
Along with the risk of more unpaid patient bills — which hospitals count as unlikely-to-be-collected bad debt or charity care — the loss of subsidies would also discourage patients from seeking care, according to Mitchell Morris, global health-care sector leader at the consulting firm Deloitte.
“If it isn’t an emergency, you’re probably not going to have it taken care of,” Morris said. “I could see decreasing revenue, and increasing charity care and bad debt.”
Although past cases have ultimately been decided in Obamacare’s favor, Thursday’s ruling by U.S. District Judge Rosemary Collyer was a victory for the Republican-controlled House of Representatives, which brought the case. It focuses on whether the Affordable Care Act, or ACA, contained a proper legislative appropriation for funds to reimburse insurers for reductions they provide to members in cost-sharing payments: deductibles, co-pays and co-insurance. About 5.6 million people, or more than half of those enrolled in ACA plans, received the subsidies last year, according to America’s Health Insurance Plans, an industry group.
The White House said that the administration is confident in its legal arguments and blamed Republicans for using the court system to resolve political disputes.
A decision on the case is likely months away — perhaps in the second quarter of 2017 — and a Supreme Court appeal is possible, according to Brian Wright, an analyst with Sterne Agee CRT, who called the hospital sell-off an “overreaction.”

Low-Income Patients
“This decision does not affect the status quo at this point,” said Chip Kahn, president of the Federation of American Hospitals, an industry trade group. “The millions of low-income patients who depend on coverage through the Affordable Care Act will continue to do so while this case works its way through the court system.” The real impact of the ruling is in the uncertainty it injects, said Michael Abrams, a managing partner with Numerof & Associates, a health-care management consulting firm.
“It’s another blow to the viability of the concept as far as improving access,” he said. “What this does is take a battering ram to the whole idea.”

Insurers Exit
Health insurers have the option to leave Obamacare’s state markets. UnitedHealth Group Inc. has indicated that will pull out of at least 26 of the 34 state ACA markets it sold plans in for this year, and Humana Inc., a small player in the program to begin with, is exiting states, too.
Some hospitals have a great deal hanging on Obamacare, which has helped drive growth in their Ebitda — or earnings before interest, taxes, depreciation and amortization.
If the House suit succeeds, “the fear is that the insurers would wring their hands and walk away, and a lot of that Ebitda for hospitals would go away,” Bloomberg Intelligence’s McGorman said.

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