The broad trends that have shaped the hospital industry in the US have been noted below:

1. The Affordable Care act and its implementation have significantly affected the entire hospital
sector. Hospitals have to be vigilant on two fronts, they are shifting from fee-for-service (FFS)
mode of payment to a new value-based payment model and also streamlining operations as
they need to curtail costs. This regulation has resulted into several challenges for the hospital
industry in US:
Reduction in Medicaid DSH Payments (disproportionate share payments) is expected to
affect bottom lines for hospitals. Medicaid DSH cuts are expected to be initiated by 2017.
Reduction in Medicare payments coupled with penalties for patient readmission is also
expected to affect the profitability of hospitals.
In value based payment model, capitation and risk-sharing are two models adopted in
Medicaid managed care. These have increased the exposure of hospitals to fluctuations in
profitability. Risk-sharing with payer fares better than capitation in terms of both bottom
lines as well as reducing unnecessary patient admissions.
As affordable care act promotes greater efficiency in the hospital sector, consolidation and
reduction in overcapacity are expected. Hospital beds have increased at 3.7% CAGR from
2012 but patient admission rate declined by 1% in the same time frame.
In an attempt to reduce costs, investments in revamping the IT infrastructure and better use
of data analytics is needed. This is expected to hurt profits as payments have been severely
constrained.
2. There are also benefits that have resulted from the change in the regulatory and market
environment.
As health care insurance coverage increases and there is a reduction in uncompensated
care, bad debt account for the hospitals can be expected to reduce considerably.
3. Several government initiatives have been launched to incentivize and encourage the hospital
industry to value-based payment. These include following initiatives implemented by CMS
(center for Medicare and Medicaid Services)
BPCI (bundled payment for care improvement initiative): There have been 4 models that
have been implemented where the participating hospitals accept bundled payments from
Medicare at some discount for the service that they provide. Currently, 299 hospitals and
166 post-acute care organizations have participated in this program.
Medicare Shared Savings program: To facilitate coordination amongst different healthcare
providers to improve quality of care for Medicare FFS beneficiaries and reduce costs.These
coordinated groups of health care providers form an ACO (accountable care organization)
which is responsible for the care of a group of a minimum of 5000 Medicare fee-for-service
beneficiaries.
There are several other initiatives focused on primary health care, payment models in rural
areas, etc.
4. Efforts have been made to increase health insurance coverage by establishing health exchanges
in accordance of affordable care act. There are set of government regulated and standardized
health plans for people to choose from, which, depending on certain conditions can also provide

for subsidies. Penalties are imposed on those citizens who are not covered by acceptable health
insurance policy. In a hearing in Oklahoma, the federal judge has ruled that Obamacare
subsidies will be invalid in states that are not running state based health insurance exchange.
This might impact the insurance coverage efforts of the government and also those hospitals
like Community Healthcare depending on newly insured patients to help cut bad debt expenses.
5. Non-profit hospitals are reducing leverage in order to maintain their credit ratings.