(The following statement was released by the rating agency)
NEW YORK, September 12 (Fitch) The U.S. healthcare industry's
shift to value has
created a secular upheaval that permeates nearly every
sub-sector, says Fitch
Ratings in a report published today.
"As the industry grapples with a range of issues, it's
increasingly clear that
no corner of the healthcare industry will remain totally
untouched," says Megan
Neuburger, Managing Director, U.S. Corporates. "All types of
companies have some imperative to reshape their business models
around the shift
to value, and that in itself is creating a host of challenges
During the month of August, Fitch's U.S. healthcare team
questions about the trends cited below, which embody the secular
arising from the shift to value.
Lower Acuity Admissions
Some acute care hospital operators with operations in rural and
markets saw weak 2Q16 results. Since it can be difficult to
predict the bottom
on inpatient hospital admissions in those types of markets, more
of the same may
be in store.
"Patients and insurers both have price incentives to shift care
hospitals with their high fixed costs to higher-value settings,"
"For hospital companies, this highlights the importance of
having a strategy to
preserve market share in the long term."
Investments in outpatient facilities like Tenet Healthcare
Corp's acquisition of
United Surgical Partners, or divestitures in non-competitive
Community Health Systems' divestiture of Quorum Health Corp, are
strategies that may be employed by other hospitals, even if they
risk in the short term.
Health Insurance Consolidation
While it is fairly obvious to assume that health insurer
erode providers' pricing power, Fitch believes that erosion is
because price negotiations take place market-by-market.
"Pricing battles will continue to be won and lost at the local
market level, so
national breadth - both for insurance companies and providers -
necessarily trump in-market depth," says Neuburger.
The impact of insurer consolidation on the ACA health insurance
a complex issue. Acute care hospitals in particular are exposed
to this issue,
as competitive public insurance markets support lower levels of
patients and uncompensated care, which will bolster cash flows
in the longer
Medicare Reimbursement Reforms
Vertical consolidation and rationalization of capacity in some
segments has been
necessary for post-acute care (PAC) providers to adjust to
reimbursement reform. Medicare bundling initiatives will bear
fruit for PACs
longer-term through better provider relationships and referral
"Initiatives like the Comprehensive Care for Joint Replacement
(CJR) model will
differentiate PAC providers by how well they reduce financial
risk for acute
care hospitals under bundled payments," says Neuburger. "The
wheat will separate
from the chaff along the lines of which PACs have the best
referral relationships in place."
The importance of acute care referral relationships will be
compounded by the
long-term acute care (LTAC) specific reforms such as site
neutral payments and
the 25% rule.
Generic Drug Pricing
Amid the headlines on significant drug price increases, there is
of a small number of very expensive specialty drug launches that
efficacy or are significantly complex to manufacture, and
generic drugs with
relatively little clinical differentiation.
"At the heart of the recent momentum on drug pricing are the
competitive market forces," says Neuburger. "Outside the few
headlines, the U.S. market for generic pharmaceuticals remains
Generic pharma will likely remain highly competitive given the
number of new
suppliers that entered the market in recent years to accommodate
drug applications (ANDAs). This may squeeze the margins of
wholesalers and distributors who profit from the purchase and
sale of generics.
Opioid Addiction Epidemic
Efforts to address increasing levels of narcotics abuse has
spurred a shift
among the way opioid drugs are developed, marketed and
"For physicians and policy makers, these efforts constitute
rethink of pain
management practices from policy to prescription," says
For generic drug manufacturers offering ndirect substitutes or
opioids, pricing has been an effective tool in grabbing market
pharmaceutical companies will feel competitive and regulatory
strategic deals and drug development important components of
The full report, "What Investors Want to Know: U.S. Healthcare:
Recent Investor Meetings," is available at www.fitchratings.com
or by clicking
on the link.
Megan Neuburger, CFA
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Robert Kirby, CFA
Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908
Additional information is available at www.fitchratings.com
What Investors Want to Know: U.S. Healthcare (Takeaways from
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