Inpatient Admissions Increase as ACA Continues Roll-Out

Fitch Ratings has released a report titled, “Hospitals’ Credit Diagnosis: Favorable Factors Converge to Support Organic Growth,” which indicated that the Patient Protection and Affordable Care Act (ACA) (P.L.111-148) has helped to create strong organic growth in inpatient admissions throughout 2014 compared to the fourth quarter of 2012. Fitch believes the hospital industry may gain another two quarters of above-trend growth as ACA enrollment numbers increase in early 2015, though challenges to the growth’s sustenance exist.

Quarterly Results

The Fitch Ratings report is available on its website and provides a summary of the quarterly operating performance and credit metrics of companies in the for-profit hospital sector, including detailed debt and organizational structure charts.

Patient volumes significantly grew in the third quarter of 2014, with admissions up almost 1 percent and adjusted admissions up 3.5 percent. The report also showed that ACA enrollment numbers have contributed to a decrease in uncompensated care for uninsured patients. Compared to the third quarter of 2013, hospitals in the same timeframe in 2014 saw a 21.5 percent revenue drop in adjusted bad debt expense.

Sustainability

Fitch Ratings projects that sustaining positive organic growth in inpatient admissions is unlikely, however, due in part to pressures put upon hospitals to reduce volumes of short-stay admissions and readmission rates. Some of the pressure comes from insurers, while some comes from Section 3025 of the ACA, which added Section 1886(q) to the Social Security Act (SSA), establishing Medicare’s Hospital Readmission Reduction Program (HRRP). The HRRP was developed to address concerns that Inpatient Prospective Payment System (IPPS) hospitals, which receive predetermined reimbursements from CMS upon discharge of each patient, were seeing too many readmissions. The HRRP imposes a penalty in the form of reduced payments to IPPS hospitals that have excessive readmissions.

Fitch Ratings also sees GOP opposition to the ACA as a sustainability factor in light of the Republican take-over of Congress and the pending Supreme Court review of the legality of tax subsidies for some customers of the Health Insurance Exchanges.