The acceleration of consolidation in the healthcare sector over the past two years will continue and is generally beneficial for investors in non-profit hospital bonds, according to Fitch Credit Ratings.
Fitch expects the healthcare merger and acquisition trend to continue because key factors that are driving change will remain in place. Some of those factors include:
• Reimbursement under the Medicare and Medicaid programs will be constrained due to the weak economy and difficult fiscal conditions, according to the report.
• Supplemental funding programs are facing reductions as part of the Patient Protection and Affordable Care Act.
• Pressure on commercial and managed care insurance rates is increasing/decreasing/continuing?, which may offset losses on governmental reimbursement, according to the report.
In addition, Fitch believes a common theme shared by M&A in the non-profit healthcare sector has been financially stronger acquiring standalone hospitals or smaller health systems, such as credits — such as Edmundson, Mo.-based Ascension Health's acquisition of Alexian Brothers Health System. For this reason, M&A activity will be driven by financial need as well as strategic considerations, and bondholders stand to benefit from several potential outcomes, according to the report. The potential outcomes include:
• Debt becomes the obligation of the acquirer through substitution of security.
• Debt is refunded by the acquirer.
• Debt remains a separate obligation of the acquired entity.
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Fitch expects the healthcare merger and acquisition trend to continue because key factors that are driving change will remain in place. Some of those factors include:
• Reimbursement under the Medicare and Medicaid programs will be constrained due to the weak economy and difficult fiscal conditions, according to the report.
• Supplemental funding programs are facing reductions as part of the Patient Protection and Affordable Care Act.
• Pressure on commercial and managed care insurance rates is increasing/decreasing/continuing?, which may offset losses on governmental reimbursement, according to the report.
In addition, Fitch believes a common theme shared by M&A in the non-profit healthcare sector has been financially stronger acquiring standalone hospitals or smaller health systems, such as credits — such as Edmundson, Mo.-based Ascension Health's acquisition of Alexian Brothers Health System. For this reason, M&A activity will be driven by financial need as well as strategic considerations, and bondholders stand to benefit from several potential outcomes, according to the report. The potential outcomes include:
• Debt becomes the obligation of the acquirer through substitution of security.
• Debt is refunded by the acquirer.
• Debt remains a separate obligation of the acquired entity.
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