Health care reform may hurt hospital credit

High-cost urban U.S. hospitals may face debt rating downgrades if large cuts to Medicare funding are implemented as part of U.S. health care reform, Moody's Investors Service said on Monday.

The U.S. Senate voted on Saturday to debate a reform bill two weeks after the House of Representatives passed its own version of a bill. Both bills seek to expand the number of insured patients, while reining in future health care costs.

"Achievement of these goals will affect hospitals in different ways, but cost control measures could be especially negative for the credit position of many high-cost urban hospitals even if the number of insured patients expands," Moody's said in a report.

The push to cut costs is driven by the rising costs of Medicare, the federal health care program for the elderly.

Research shows there are massive cost differences between hospitals in different regions. A recent report by Dartmouth College revealed costs per Medicare enrollee ranged from $5,300 to $16,000 in 2006.

Most of the 17 highest cost hospitals are in urban or densely populated areas, which tend to have a higher cost of living, higher poverty and unemployment levels, diverse populations with diverse health care needs and expensive research arms.

The cost differences also highlight the local nature of health care markets with most hospitals drawing more than 90 percent of patients from a 50-mile radius.

If reform involves large Medicare cuts, the best-placed hospitals are those that are part of multi-state systems that have economies of scale or those that gain the most new patients with health insurance.

"The most vulnerable hospitals will be stand-alone hospitals dependent on high cost referral practices and which do not gain many new paying patients," the agency said.