Tax overhaul likely to benefit for-profit hospitals — nonprofits, not so much
Thursday, March 01, 2018
The recent Republican tax overhaul has generated millions in bonuses for corporations all across the U.S, and is creating new jobs by these companies looking to reinvest on American soil. When it comes to the healthcare industry, for-profit hospitals are expected to reap major rewards, according to a recent report by Moody's Investor Service.
Moody's said the $1.5 trillion tax cut will boost cash flow to these organizations and help offset industry headwinds, while the lower corporate tax rate and increased ability to deduct capital expenses also will help those health systems. For example, HCA Healthcare and Universal Health Services (UHS) ware expected to benefit the most from the change.
Moody's said nine of the 11 for-profit hospitals it analyzed will have lower taxes in 2018. However, per the report, Community Health Systems (CHS) and Quorum may pay more in taxes, which will affect already-limited cash flow.
Tax cuts under the Republican plan should alleviate financial burden for most for-profit hospitals faced with "lackluster" patient volume growth, reimbursement risk and costs connected to compensation and benefits, Moody's says. "Reduced taxes for systems like HCA and UHS will give them an edge against nonprofit competitors that won't benefit as much from the lower taxes," Healthcare Dive reports.
Specifically, net aggregate tax savings for the rated for-profit hospitals will be between $700 million and $800 million more in 2018 compared to what would have been paid under the previous rules — a substantial savings to say the least. But that savings will have upstream effects.
In fact, Moody's says most of these health systems will invest the savings in ways to "attract and retain employees and improve patient volumes," according to Healthcare Dive. "HCA will save about $500 million in taxes in 2018, and Moody's expects the system will invest about $300 million on workplace development initiatives, such as education programs, tuition reimbursement and expanded family leave. Also, investments in clinical technologies and adding outpatient facilities will help HCA increase patient volumes."
"In an environment of continued nursing shortages and a tightening labor market, we believe that these initiatives will help the company attract and retain talent, particularly as HCA generally operates hospitals in highly-competitive urban and suburban markets," Moody's said.
Health systems won't be able to deduct as much interest expense, however, making repaying debt a higher priority.
Moody's says it expects that nonprofits won't gain the same benefits as for-profits in the tax law, giving for-profits a "further advantage against their nonprofit competitors, who are already struggling to improve margins."
Nonprofits are figuring out whether the tax bill may actually hurt them. They may wind up paying higher taxes on employees making more than $1 million. The tax rate depends on how the nonprofits are structured, Healthcare Dive reports.
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