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The Senate's Obamacare repeal bill could be bad business for hospitals

  • The Affordable Care Act has reduced the number of uninsured Americans, helping boost hospital revenue.
  • The Senate's replacement proposal could slim already thin margins, especially for not-for-profit rural hospitals.
A registered nurse hangs an I.V. bag for a patient at the University of Miami Hospital's Emergency Department.
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A registered nurse hangs an I.V. bag for a patient at the University of Miami Hospital's Emergency Department.

Melissa Memorial Hospital in rural Northeastern Colorado was bleeding money before the Affordable Care Act. Most patients came through the emergency room, where costs are high and the chance of the hospital getting paid for those services is low.

With just 15 beds, the not-for-profit critical access hospital in Holyoke, Colorado, was operating at a loss of 3 to 4 percent annually, said CEO Trampas Hutches. Once the law was implemented, more patients came through primary care and paid their bills, boosting the hospital's profit margin to 2 to 3 percent annually.

That change could revert if the Senate passes its Better Care Reconciliation Act.

"Essentially, we'll be right back to where we were before the ACA from a coverage standpoint," Hutches said. "We suspect once that happens, we're going to go back to the method of patients going through the ER to get the care they were getting in primary care."

The Affordable Care Act expanded Medicaid and created subsidies to help people buy into individual insurance marketplaces. The Senate's bill to replace the Affordable Care Act would cap federal Medicaid spending and reduce subsidies, which the Congressional Budget Office predicts would cause 15 million people to lose health insurance next year, and up to 22 million by 2026.

That translates to fewer people able to pay hospital bills.

"It's a clear negative for all hospitals, but the degree of negative depends," said JPMorgan analyst Gary Taylor.

A little more than half of all 5,564 registered hospitals in the U.S. are not-for-profit, according to the American Hospital Association. Nonprofits in the 31 states and Washington, D.C., that expanded Medicaid would take the hardest hit.

California and New York, the first and third most populous states, have insured a combined 5.7 million people through the Medicaid expansion — the most of all the states, according to data from the Kaiser Family Foundation. Those states voted for Hillary Clinton. Pennsylvania and Ohio had the third- and fourth-largest expansion of the program, insuring a combined 2 million. Both states voted for Trump.

Under the Affordable Care Act, states could opt to expand Medicaid. Hospitals in those states saw revenue increase, as people they were already treating could pay their bills and people who did not come for treatment suddenly did once they were insured.

Under the Senate proposal, on average, revenue for hospitals in states that expanded Medicaid coverage could be cut 2 to 3 percent by 2024, Taylor said. Margins are already thin for most hospitals. Not-for-profit hospitals in rural and urban areas could feel the brunt of the changes because they tend to treat more patients who are covered under Medicaid.

At Melissa Memorial Hospital, 10 percent of all patients are insured by Medicaid, Hutches said. Before the Affordable Care Act, as much as 40 percent of emergency room patients were insured by Medicaid. That's decreased to around 15 percent, as more people are treated in primary care.

It's considerably cheaper for patients to go to the doctor than the emergency room. Treatment in a doctor's office could cost between $80 and $120 at a self-pay rate, Hutches said. That same visit could cost between $800 and $1,800 in the emergency room, and that's a big price tag for some.

"What happens then is we try to get people in charity care programs if they qualify, but if they don't, we're stuck with bill ramifications on both sides: for the hospital, we don't collect any of that money. On the patient side, they just can't afford to pay it," Hutches said.

Rural hospitals have already been closing around the country due to demographic, market and industry changes, said Mark Holmes, director of the North Carolina Rural Health Research and Policy Analysis Center. Shrinking Medicaid may not lead to widespread closures, but revenue decreases could still hurt.

"Given that rurals are starting out in a financial position that's going to be less strong, that bigger effect of a decrease in Medicaid coverage will be really felt," Holmes said.

Larger publicly traded hospitals may not feel as much pressure from Medicaid cuts because they tend to have more properties in Sunbelt states that did not expand the program, said Taylor, the JPMorgan analyst, but they would still feel the effects of subsidy reductions.

Despite the possibilities, Wall Street has remained optimistic on the hospital sector. But that could change.

"Hospital stocks have been rallying all week because nobody thinks they can get this done," Taylor said. "I think you'd see a pretty sharp reversal if the Senate passes this."

Watch: Will hospitals feel pain?