Credit analysts at Moody’s Investors Service say the giant health insurance acquisitions, now under way, could start to do serious damage to hospital’s finances in mid-2017.
Hospitals with multi-year deals with insurers could have more time to adapt, but hospitals that fail to take steps to improve their own negotiating position could eventually face serious threats to their profitability, Lisa Martin and other Moody’s analysts say in a new commentary.
“Over half of hospital revenue is subject to negotiation with health insurers,” the Moody’s analysts say.
Smaller, stand-alone hospitals without a good way to stand out from nearby competitors could have an especially hard time, the analysts say.
The analysts expect to see the insurer M&A leading to an increase in hospital consolidation over the next two years.
The deal between Anthem Inc. (NYSE:ANTM) and Cigna Corp. (NYSE:CI) would give that combined company a 22 percent share of U.S. consumers with commercial health coverage, and the deal between Aetna Inc. (NYSE:AET) and Humana Inc. (NYSE:HUM) would give that combined company a 14 percent share.
Even when patients come in with Medicare, Medicaid or other government health coverage, they may really be using government-affiliated plans managed by private health insurers, the analysts say.
About 33 percent of hospitals’ revenue comes from commercial plans, 10 percent from privately managed Medicare Advantage plans, and 8 percent from privately managed Medicaid plans, according to Moody’s hospital data.