How the new Trump administration could hurt provider finances

Modern Healthcare – Friday, December 6, 2024
By Caroline Hudson

The healthcare industry is anxiously awaiting a new administration under President-elect Donald Trump — and some analysts think the change in leadership could do providers’ finances more harm than good.

A report published this week from S&P Global Ratings said possible changes following the election’s “red wave” are likely to have a net negative impact on healthcare ratings, although near-term effects will be limited.

Healthcare was not a contentious issue during the latest campaign season, but Trump and other Republican leaders have expressed their desire to alter how care delivery is financed.

Possible changes on the horizon range from cuts to Affordable Care Act subsidies and reduced Medicaid funding, to tariffs on medical supplies from China — all of which could create challenges for healthcare providers. But Trump supporters are hoping his perceived business-friendly inclination will lead to less federal scrutiny on mergers and keep inflation on a downward trajectory.

Here’s a look at what the new Trump administration could mean for providers’ financial strategies.

What policy changes could negatively impact providers?

Analysts say government-led insurance programs will likely be a target for the new administration.

Several Affordable Care Act subsidies, which help lower premiums and reduce out-of-pocket costs for members, are set to expire at the end of 2025, potentially leading to millions of people losing coverage. For providers, a higher uninsured population could mean more bad debt expenses or charity care costs, especially among safety-net hospitals, the S&P report said.

Medicaid programs are likely to be under pressure as well, given Trump’s stated intentions to pull back funding. Some politicians are in favor of transitioning Medicaid to block grants that cap federal contributions. However, block grants could mean hefty cuts for state Medicaid programs and reductions in federal matching funds, the report said.

The new administration could also implement additional tariffs on medical supplies from China, driving up supply costs for providers already struggling to bring expenses down.

Could the M&A environment improve?

Industry watchers are expecting less regulatory oversight on mergers and acquisitions under the new Trump administration, which could bode well for health systems looking to consolidate.

The Federal Trade Commission under current Chair Lina Kahn has taken a hard-nosed approach to hospital mergers. In June, Novant Health in Winston-Salem, North Carolina, axed a proposed deal to buy two hospitals from Franklin, Tennessee-based Community Health Systems after the FTC sued to block the deal. Last month, Union Health in Indiana withdrew its application to buy Terre Haute Regional Hospital due to regulatory pushback.

However, the level of scrutiny could be higher during Trump’s second term compared with other Republican presidencies, given the public’s mistrust of large companies, said Arthur Wong, healthcare managing director at S&P Global.

Private equity deals will continue to play a big role in healthcare M&A, despite some slowdown in recent years, Wong noted.

“You have a bunch of private equity firms that have heavily invested in healthcare, and they look to flip,” Wong said. “They could be anxious to sell, and even if they’re not selling, they need to do roll-ups to continue to get that scale, to get those efficiencies and to increase their negotiating power with insurers.”

Could lower interest rates alter providers’ strategies?

In September, the Federal Reserve cut its benchmark rate for the first time in four years. With the inflation rate waning, interest rates are expected to keep declining during Trump’s second term.

Lower interest rates often spur more borrowing and investments, but near-term rate changes aren’t likely to significantly alter providers’ financial strategies, said Kevin Holloran, senior director at credit ratings agency Fitch Ratings.

Healthcare is a capital-intensive industry, and decision-making on building projects and other big investments isn’t tied to temporary rate fluctuations, Holloran said.

David Peknay, healthcare director at S&P Global, agreed that providers aren’t likely to change their overall financial strategy. But rate changes could influence whether providers tap into cash flow or borrow money to fund projects, he noted.

Providers’ investment priorities have also changed in the last several years. Hospitals and health systems are more focused on investing in existing markets, including outpatient services such as ambulatory surgery centers and behavioral health facilities, Peknay said.

Should the industry expect near-term changes?’

Major near-term changes are unlikely, given that policies take months or years to enact and implement.

But the unknowns of what’s to come during Trump’s second term could still rattle the industry.

“Healthcare is in a fragile place right now,” Holloran said. “What we need in healthcare is stability, and when you have transitions at the White House and [in] administrations, you inject some instability. Inherently, that’s something you want to watch going forward.”

How are providers thinking through potential policy changes?

Healthcare executives and other industry leaders say there are no straight answers at this point, so many are taking a wait-and-see approach.

“I think, candidly, there are more questions than answers. …It’s too early to predict or change behaviors,” J.P. Gallagher, president and CEO of Evanston, Illinois-based Endeavor Health, said at the Crain’s Chicago Business Hospital CEO Breakfast this week.

Federation of American Hospitals President and CEO Chip Kahn also said it’s too early to tell how Trump’s policies will affect healthcare.

“A lot of the critical people are still to be appointed or hired,” Kahn said. “We shouldn’t necessarily rush to judgment as to [what the new administration will do] until we can have that policy discussion.”

Healthcare pushes forward no matter the administration, Dr. Tom Shanley, president and CEO at Chicago-based Lurie Children’s Hospital, said at the CEO breakfast. He said Medicaid funding cuts are one of his main concerns because the program covers a large portion of Lurie’s patient population. Funding cuts could alter reimbursements and potentially jeopardize coverage.

System executives have also expressed concerns about the future of Medicare Advantage, the 340B drug pricing program and women’s health.

Access this article at its original source.