This is a guest post from Joseph Rosenblum, the Director of Municipal Credit Research at AllianceBernstein.
To stay solvent, hospitals run a numbers game, charging high prices to patients with private insurance to offset lower payments from Medicare, Medicaid and the uninsured. Some hospitals make a nice profit; others struggle. Now hospitals are facing a game changer – the Affordable Care Act, which expands Americans’ access to medical insurance, but changes the reimbursement rules to care providers.
How will this affect hospitals’ bottom lines and their ability to pay off debt?
Most hospitals in the United States have non-profit status. They don’t pay taxes because they provide free or low-cost healthcare to those who need it. To attract paying customers, hospitals need enhancements like new cardiology centers, plastic surgery facilities and private rooms. Financing these things often means issuing municipal bonds.
Whether the Affordable Care Act will be a boon or bust for hospitals is unclear, but its implementation will change the way that they operate. Hospitals that are more efficient and reduce costs will have better shots at survival. But can they also continue to make their bond payments?