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Global Credit Research - 06 Jun 2012
New York, June 06, 2012 -- The pending ruling by the US Supreme Court on the constitutionality of
the 2010 Affordable Care Act is likely to result in one of three possible
outcomes, says Moody's Investors Service in its new special
comment "For-Profit Hospitals, Drug Companies and Medical-Device
Makers, Three Likely Outcomes of the Supreme Court's Pending
Decision on the 2010 Healthcare Law." The decision is expected
later this month.
Each of the three scenarios detailed in the report has different implications
for the credit profiles of for-profit hospitals, pharmaceutical
companies and medical-device makers, says Moody's.
If the US Supreme Court decides the law is constitutional, Moody's
says for-profit hospitals — including HCA Inc.,
CHS/Community Health Systems Inc. and Tenet Healthcare Corp.
— would benefit because their exposure to bad-debt charges
would drop. Pharmaceutical companies led by Pfizer Inc.
and Merck & Co. will continue to incur the costs associated
with the law and medical-device makers Medtronic Inc. and
Stryker Corp., among others, will need to pay a new
tax on US revenues.
Moody's says that if the court strikes down the individual mandate
but leaves most of the law standing, the effect will be credit negative
for all three industry segments. With fewer people covered by healthcare
insurance, for-profit hospitals will face increased bad-debt
exposure and reduced reimbursement rates. Pharmaceutical companies
would sell fewer drugs and medical-device makers would pay a new
excise tax and feel pricing pressure from hospitals, says the report.
The third possible scenario, where the court decides the mandate
is unconstitutional and essentially strikes down the law, would
provide near-term relief for pharmaceutical and medical device
companies but for-profit hospitals would see pressure from continued
increases in bad debt charges as individuals remain without insurance.
However, this outcome would be negative in the long-term
for all three segments because of market uncertainty over cost control
by the government, says Moody's.
Moody's research subscribers can access this report at http://www.moodys.com/research/US-HealthcareThree-Likely-Outcomes-of-the-Supreme-Courts-Pending-Decision--PBC_142544.
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VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's: Supreme Court decision on healthcare law has three likely outcomes
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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