Moody's: Health law to aid hospitals

Moody's Investors Service, the New York firm that rates bond issues, yesterday confirmed what many already know about the new Massachusetts healthcare law: It will be good for hospitals.

In a note to clients, Moody's said the law, intended to reduce the number of residents without health insurance, would ''have a positive credit impact on hospitals in the state."

Efforts to expand insurance coverage would ''provide relief for hospitals that have continued to struggle with rising bad debt and charity case loads, as well as limited reimbursement under traditional Medicaid programs," Moody's wrote.

Boston Medical Center and Cambridge Health Alliance lobbied for provisions in the healthcare law that protect millions of dollars in Medicaid funding they receive, even as the law phases out the state's $800 million fund to reimburse hospitals for uncompensated care they provide.

Other hospitals also will benefit from additional Medicaid funding included in the new law, about $90 million annually for three years, starting in 2007. Moody's said that will help institutions that haven't received enough Medicaid reimbursement to cover the costs of providing care.

''Massachusetts has a reputation nationally for reimbursing hospitals at well below cost for services provided to Medicaid enrollees," said Paul D. Wingle, a spokesman for the Massachusetts Hospital Association.

''That underpayment has to be offset. Policy makers rightly believe that cost-shifting from the uninsured to rate payers was having an inflationary effect on the insurance premiums people pay in the private marketplace."

Medicaid is the joint federal-state program that pays for medical care for low-income and disabled residents. The healthcare law is aimed at reducing the number of uninsured, in part, by increasing the number of people who qualify for Medicaid. Hospitals wanted to make sure the legislation included a boost in Medicaid reimbursements, so they wouldn't lose money by providing expanded services.

A Moody's assistant vice president, Roger Goodman, who co-wrote the note, said an increase in the number of Massachusetts residents with health insurance will result in additional revenue for hospitals.

''A pool of individuals that wouldn't generate any revenue for the hospitals now will provide some level of reimbursement," Goodman said.

While the law is expected to benefit hospitals overall, Moody's said, it's impossible to know whether all hospitals will see an improvement. In addition, it said, increased use of high-deductible health plans -- HMOs that include out-of-pocket expenses for consumers that can amount to thousands of dollars -- could potentially increase bad debt for hospitals if patients fail to pay their bills.

''The impact [of reform efforts] on any given hospital is unknown and could even be negative," said Goodman.

Of about 20 hospitals and hospital groups in Massachusetts whose bonds are rated by Moody's, only two have the highest rating: Partners HealthCare System and Children's Hospital.

Three hospitals -- Holyoke Hospital, Saints Memorial Medical Center in Lowell, and Massachusetts Eye and Ear Infirmary in Boston -- have below investment-grade ratings on their debt from Moody's, Goodman said.

Jeffrey Krasner can be reached at krasner@globe.com.