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How the new Supreme Court case could affect hospitals

March 5, 2015

    Dan Diamond, Executive Editor

    The King v. Burwell case—and yesterday's oral arguments—has been scrutinized from so many directions. What it means for patients, for insurance exchanges, even for the future of the overall Affordable Care Act.

    But there's been one relatively overlooked aspect of the Supreme Court decision: The impact on the health care industry, and hospitals particularly.

    Some groups have modeled out the potential effects if the high court decides that subsidies in the federal exchanges are illegal. For example, the Urban Institute projected that the hospital industry would lose $6.3 billion in revenue, as some insured patients would drop coverage, and bad debt and uncompensated care would rise.

    I was curious for a sense of the impact on an individual hospital, and spoke with the researchers who run the Advisory Board's internal "Pleasantville" model—a simulation of an average hospital's finances. They examined the effect on a 338-bed hospital if the subsidized exchange market was essentially knocked out post-Supreme Court decision, and came up with some very rough estimates:

    • In Medicaid expansion states, losing exchange subsidies reduces net payment by $1.8 million per hospital, with over $1 million in previous payments now being written off as charity care;
    • In Medicaid opt-out states, the result is the same when subsidies are lost—net payment reduces by $1.8 million per hospital and financial assistance increases by $1 million.

    To reiterate, these are estimates, just to give a shape for the potential impact. But it's a reminder that a ruling in King v. Burwell affects both Main Street and Wall Street.

    Just look to the market for evidence: When news broke on Wednesday that Justice Kennedy appeared skeptical of the case against the ACA, hospital stocks immediately climbed higher.

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