HCA Holdings Inc (HCA), Tenet Healthcare Corp (THC), And Obamacare’s Big Boost

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The Patient Protection and Affordable Care Act, perhaps better known as Obamacare, is certainly one of the most controversial pieces of legislation to come out of the Obama administration. Designed to reform our current health-care system by mandating individuals carry health insurance, and capping insurers medical loss ratios at 80% to ensure patients get the quality of care they expect when they need it, Obamacare’s favorable ratings fell in a Kaiser Family Foundation poll last month to their second-lowest level since the bill passed in 2010.

The bill is polarizing, without question. But, with its implementation less than seven months away, Obamacare received a big boost earlier this week with the release of a study on hospital costs by the Centers for Medicare and Medicaid Services, or CMS. In this study, the CMS looked at more than 3,000 hospitals nationwide that accept government-sponsored Medicare and examined the cost for the 100 most frequently billed treatments and procedures. The results of the study were downright frightening and would definitely support the need for accountability, transparency, and some form of regulation with regard to hospital costs.

Obamacare’s big boost
Without going into too much detail behind the figures, the cost of many of the procedures — surprisingly even within the same town — often varied by a wide margin in the CMS’ study. The Washington Post fittingly covered hospitals in the Washington D.C. area, noting that the cost for a permanent pacemaker implant at two hospitals that are less than 1,000 feet apart varied by an astounding and disappointing $61,000 — or practically 100% for the same procedure! Admittedly, not all of these costs are covered by insurance, which requires the patient to kick in a significant portion in certain cases, but this is a big, big problem any way you look at it — and all the more reason why Obamacare’s reforms could be a much needed knock-out punch for runaway health care costs.

Source: White House on Flickr.

One of the main goals of the PPACA is to curb the rising costs of health care premiums, and one of the easiest ways to accomplish this is by creating as much transparency as possible. Most people have focused on the health insurance exchanges as the easiest way to accomplish this by making premiums visible and requiring insurers to compete against one another in a public venue to inspire competitive pricing, which is ultimately good for the consumer. Yet a more immediate and effective impact to patient premiums could be felt from the exposure of hospital pricing practices to the public eye.

Price transparency could be welcome news for hospitals and insurers
Believe it or not, price transparency among hospitals wouldn’t actually be all bad news.

The nation’s largest hospital providers, HCA Holdings Inc (NYSE:HCA) and Tenet Healthcare Corp (NYSE:THC) are already expected to benefit in a big way because the individual mandate will help reduce a good chunk of their annual bad debt expenses. In 2012, HCA Holdings Inc (NYSE:HCA) wrote off $3.77 billion, or 10.25%, of its revenue to doubtful accounts, with Tenet Healthcare Corp (NYSE:THC) chiming in with $785 million of writedowns of its own — nearly 8% of its annual revenue. Adding pricing transparency on top of the benefits to come from the individual mandate could help these two large hospitals improve their public image with patients and shareholders by making elective procedure costs accessible at the click of a button.

Pricing transparency would also be good news for the consumer because it would make costs visible and allow hospitals to compete with one another in order to gain procedures. While you’re not likely to drive 400 miles to treat a broken arm, you may be willing to do so if it means saving $10,000 or more on another elective treatment or procedure.

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