OREANDA-NEWS. The for-profit hospital industry is seeing the tailwind to operating results provided by the Affordable Care Act dissipate, Fitch Ratings says. However, organic growth in patient volumes and pricing remained solid for the industry in 2Q15. Going forward, some of the 20 states that have not yet expanded Medicaid eligibility may opt to do so, providing a catalyst for additional ACA-related benefits. Approximately eight million Americans have now acquired health insurance since the start of the ACA-related coverage expansion.

The positive implications of the ACA-related insurance expansion gained momentum starting in the second half of 2014, and the effects on the hospital industry should be durable. However, due to a decreasing pace of coverage expansion, the magnitude of the tailwind to levels of uncompensated care and patient utilization of healthcare services is logically tapering.

Fitch believes the financial incentives and willingness of the federal government to negotiate flexible terms of Medicaid expansion with state governments increase the likelihood that more states will opt to expand eligibility. However, these decisions occur in highly politicized arenas, making the outcome of debates difficult to predict. In Fitch's view, past experience suggests that more states will eventually opt to expand over the long run. After Medicaid was created in 1965, about half of all states established programs within one year, but another four years passed before all but two states had established programs.

The for-profit hospital industry's operating results also continue to show evidence of a delayed reaction to the economic recovery. Although rates of patient volume growth will be sequentially slower in the second half of 2015, the rate is unlikely to revert to the depressed levels of 2011-2013. During 2Q15, very strong rates of growth began to taper, with year-over-year growth in same-hospital admissions and adjusted admissions of 0.8% and 2.8%, respectively. Growth in patient volumes improved fairly dramatically beginning in 2Q14, making 2Q15 the first period with a tougher year-over-year comparison.

An improving macroeconomic backdrop seems to be helping a recovery in patient volumes, indicating that the trend of growing healthcare consumerism might result in the industry exhibiting more economic cyclicality in the future. Growth in the consumer share of healthcare spending through insurance products like high deductible health plans could increase the sensitivity of the hospital industry to the financial health of the consumer.

See Fitch's special report "Hospitals' Credit Diagnosis (Tapering ACA Benefit Belies Decent Operating Fundamentals)," available at www.fitchratings.com, for a summary of the quarterly operating performance and credit metrics of companies in the for-profit hospital sector, including detailed debt and organizational structure charts.