Hospitals Saw Lower Interest Rates After Affordable Care Act

October 25, 2019 - The Affordable Care Act (ACA) did more to improve hospital fiscal health than boost profitability and decrease the amount of uncompensated care delivered, according to a recent study from the Government Finance Research Center at the University of Illinois at Chicago.

The study found that interest rates on healthcare municipal bonds decreased following the implementation of the landmark law, which reduced borrowing costs for hospitals. 

Specifically, interest rates decreased by approximately 38.8 basis points relative to rates for non-healthcare municipal bonds, resulting in about $3 million in interest savings on the average healthcare issue and $1.74 billion in aggregate interest savings on all healthcare municipal bonds issued from 2012 to 2017.

As a result, hospitals had more money to invest in patient outcomes, medical equipment, and research and development, an effect which was larger for urban and private hospitals, the study found.

“Hospitals clearly benefited from the ACA-associated decrease in the uninsured rate, but investors weren’t sure exactly how long these benefits would really last,” Dermot Murphy, study co-author and UIC associate professor of finance in the College of Business Administration, explained in a press release. “For all they knew, the ACA might be repealed next month. After the Supreme Court ruling in 2012, however, investors got a shot of confidence that the ACA was more likely to remain the law of the land.”

Research has shown that the ACA has been good for hospital fiscal health, especially in Medicaid expansion states. One study, for example, found that 69 percent of federally qualified health centers in Medicaid expansion states were significantly more likely to report financial stability and funding improvement since the implementation of the ACA, as well as being better suited to deliver behavioral health and social services, a recent survey found.

Another recent study also showed that hospital closures increased in states that did not expand Medicaid under the authority of the ACA.

With more individuals insured through provisions in the ACA, hospitals incurred less uncompensated care costs and earned more Medicaid reimbursement for patients who would have otherwise been unable to pay for care. This financial security improved the confidence of bond issuers despite some greater risk exposure, the Government Finance Research Center explained.

Long-term healthcare bonds have greater exposure to ACA-associated political risk relative to shorter-term bonds because there is a greater chance that the Trump Administration will eventually repeal the ACA.

Any weakening of the ACA through policies that restrict healthcare coverage, like Medicaid work requirements, could harm provider organizations by increasing the number of uninsured individuals.

Hospital advocates voiced their concerns about the strong possibility of an ACA repeal in December of 2018. Not only would the ruling put health coverage at risk for tens of millions of Americans, including those with chronic and pre-existing conditions, but it would “make it more difficult for hospitals and health systems to provide access to high-quality care,” Richard Pollack, president and CEO of the AHA said in a written statement. 

“If policymakers repeal the ACA’s Medicaid expansion, many rural hospitals in expansion states will need additional subsidies to remain in operation. Policy alternatives include increased DSH payments, expansion of the critical access hospital program, and other mechanisms,” a 2018 Health Affairs study showed. 

There have been at least 70 attempts to repeal, modify or otherwise curb the ACA since August 2017, researchers from the Government Finance Research Center reported. The attempts have repeatedly failed due to insufficient votes in the House or Senate. But, these efforts could have a profound impact on hospital fiscal health, they said.

“Our evidence indicates that the ACA had a significant impact on healthcare borrowing costs relative to non-healthcare borrowing costs, even in light of the associated repeal risk. However, the ACA effect on long-term borrowing costs is fairly weak and suggests that repeal risk remains an obstacle to long-term borrowing,” their study stated.

The repeal risk remains an obstacle to hospitals that want to acquire long-term financing to fund major healthcare infrastructure projects. Resolution of uncertainty about the sustainability of the ACA should promote higher long-term economic growth in the healthcare sector, the study suggested.