In January, Moody's Investors Service analysts highlighted the most pressing issues facing the healthcare industry in 2016. In a July 12 report, analysts revisited those developments for a mid-year "check-in."
Here are five findings from Moody's follow-up report.
1. Brand name pharmaceuticals: Scrutiny continues, but prices will likely continue to rise. Although politicians and the media continue to criticize the high prices of brand name prescription drugs, Moody's expects drug prices in the U.S. will continue to grow. No new legislation to curb drug prices has passed at the national level since January, and hurdles to enacting new laws remain high.
2. Generic drugs: Competition spurs pricing pressure. Although the pricing of generic and older drugs has also remained under scrutiny by the media and politicians since January, no legislative changes that would significantly affect their prices has been enacted. However, lawmakers and regulators have taken steps to encourage competition on these products, which could ultimately produce more pricing pressure.
3. Health insurers: Affordable Care Act's public exchanges struggle. Health insurers that still offer individual policies on the ACA's public exchanges continue to face financial pressure. The sector lost an estimated $3 billion on individual policies in 2014 and expects to report an even larger loss for fiscal year 2015. Meanwhile, several other effects of the ACA are similarly pressuring the health insurance sector's credit quality. As a result, many health insurers are deciding whether or not to continue offering policies on the public exchanges for 2017.
4. Medical products and devices: Integration and deleveraging follow spate of large deals. In January, Moody's analysts identified integration and deleveraging following three big M&A deals in 2015 as a key development to observe in 2016. In the last six months, the progress made by the three acquirers — Medtronic, which acquired Covidien; Becton, Dickinson and Co., which bought CareFusion; and Zimmer Biomet Holdings, which acquired Biomet — has been mixed. According to Moody's, all three companies are on track to achieve planned synergies. However, their sales growth and progress toward deleveraging have varied.
5. For-profit hospitals: Enhanced focus on significant markets. For-profit hospital operators continue to consolidate and rationalize their portfolios, according to Moody's. Activity in these areas has been robust to date. While most of it has been credit negative as it has increased leverage, Moody's believes strategically these activities make sense for the longer term. Additionally, Moody's expects consolidation in the sector will continue, driven by the need to expand scale and the ability to leverage administrative functions and investments in information technology.