Municipal Health and Hospital Trends Accelerate

The implementation of the Affordable Care Act (ACA) has created some uncertainty in the municipal healthcare sector.  Part of the uncertainty stems from reports that the ACA has led to at least five public hospital closures this year and reduced services in states where Medicaid was not expanded. Currently, 23 states have expanded Medicaid and 4 are still debating expansion. We do not believe the ACA is the cause of the closure and reduced services, but it is accelerating existing trends in the sector.  We have witnessed, for some time now, hospital mergers and consolidation of acute care services like transplant operations, neonatal services and trauma cases at regional facilities.  Regional facilities have the patient volumes and resources to justify the cost of specialized infrastructure, equipment and talent, whereas rural operators do not.  When we analyze hospital credits, we look for leaders in the sector that have regional footprints, and those that maintain balance between Medicare/Medicaid patients and the privately insured.  We also like teaching hospitals associated with university systems.  We continue to overweight the healthcare sector in our client portfolios because of the additional yield these credits provide, as well as their robust and solid credit fundamentals.