Yesterday, Massachusetts Gov. Deval Patrick signed the healthcare spending bill into law, and Moody's Investors Service believes the legislation is a negative credit outcome for Massachusetts hospitals because the law will "limit their revenue growth and reduce their operating flexibility."
The bill will limit the initial growth rate of healthcare spending in the state to the potential growth rate of Massachusetts' economy through 2017. After 2017, the spending thresholds will be limited to the state's gross domestic product. Additionally, at least 50 percent of Medicaid beneficiaries must be on alternative reimbursement models such as bundled payments and shared savings. Massachusetts officials expect the law could save up to $200 billion in healthcare spending over the next 15 years.
In a credit outlook report, Moody's analysts said the new law will negatively impact state hospitals because tying healthcare spending to the state's GDP will restrict revenue flow. A new commission established by the law can also order hospitals that don't meet cost reduction benchmarks to file a "performance improvement plan," which essentially exposes hospitals that overspend.
"Another negative credit effect of the bill is that the state will use an excise tax on insurers to support smaller and less profitable hospitals, potentially allowing them to remain in business longer than would otherwise be possible and limiting the ability of larger systems to consolidate and grow through acquisitions," Moody's analysts added in the report.
The bill will limit the initial growth rate of healthcare spending in the state to the potential growth rate of Massachusetts' economy through 2017. After 2017, the spending thresholds will be limited to the state's gross domestic product. Additionally, at least 50 percent of Medicaid beneficiaries must be on alternative reimbursement models such as bundled payments and shared savings. Massachusetts officials expect the law could save up to $200 billion in healthcare spending over the next 15 years.
In a credit outlook report, Moody's analysts said the new law will negatively impact state hospitals because tying healthcare spending to the state's GDP will restrict revenue flow. A new commission established by the law can also order hospitals that don't meet cost reduction benchmarks to file a "performance improvement plan," which essentially exposes hospitals that overspend.
"Another negative credit effect of the bill is that the state will use an excise tax on insurers to support smaller and less profitable hospitals, potentially allowing them to remain in business longer than would otherwise be possible and limiting the ability of larger systems to consolidate and grow through acquisitions," Moody's analysts added in the report.
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