Profits for hospitals and health insurers improved in the second quarter of this year, thanks to health care reform. That’s the bottom line finding from a report by Standard and Poor’s analysts. The Affordable Care Act’s business model change from fee for service to incentives for preventive care, plus its expansion of the insured population, drove strong second quarter earnings reports from several investor-owned hospital chains, including HCA, LifePoint Hospitals, Tenet Healthcare, and Universal Health Services. As a result, these companies, and major health insurers UnitedHealth Group, WellPoint, and Cigna have raised their guidance on projected financial performance for the rest of 2014.
S and P notes that hospitals and insurers can expect to see increased revenues from the still evolving insurance exchanges well into next year. The analysts cautioned that exchange enrollees and lower-income patients are still a minority of the overall healthcare business. They also noted that the newly insured tend to be older and sicker on average, so their potentially higher use of medical services may drive up costs. And another factor: hospital business plans are starting to account for reimbursement cuts mandated by the ACA. Due to these long term uncertainties, S and P is still calling the outlook for hospitals “negative” despite the early indications of stronger financial performance. The ratings agency is maintaining an outlook of “stable” for health insurers.
I’m John Howell for 3BL Media.