Trump administration's policies could create headwinds across healthcare: Fitch

Diving briefs:

Changes in health policy under President Donald Trump could negatively affect credit ratings for a wide range of healthcare companies, including providers, payers, pharmaceutical companies and medical device companies, according to a new report from Fitch Ratings. According to the report, providers and payers are most affected by the potential for Medicaid reductions. Absolute federal fund cuts that are not offset by increased state spending will be the most damaging for providers, Fitch said. Insurers can feel the downstream impact of Medicaid reductions if hospitals try to increase the payment rates for individually insured patients to ease the costs of providing care to more uninsured patients.

Dive Insights:

Since Trump won reelection in November, analysts have been trying to predict how he will reshape the healthcare industry.

Therefore, Fitch released its 2025 outlook report in December, predicting that Trump would redirect federal resources to new prioritization programs, such as vaccine efficacy assessments.

However, credit rating agencies now say they didn't accurately predict how “dramatically” the Trump administration's efforts would be to reduce the size of federal agencies.

Already, medical device manufacturers hoping to bring new products to the market have caused delays as the administration is trying to cut down on the Food and Drug Administration personnel. While some fired FDA workers who were tasked with reviewing new products have since returned, Fitch said the threat of the slower drug and device approval process could spur companies to consider mergers and acquisitions in the face of expired patents.

The impact of M&A credits is unique to the company and depends on whether the company has execution risks or whether it is necessary to engage in a long-term leveraging process to complete the transaction, Fitch said.

Congress is also weighing cuts to the Medicaid program after Trump appointed lawmakers to cut federal spending by $2 trillion.

There is little detail on what those cuts look like. However, a recent analysis from the Urban Institute and the Robert Wood Johnson Foundation found that cutting the current levels of federal funding in the 41 states that expanded Medicaid would shift costs over $44 billion to the state if they wanted to continue compensation. Nearly 11 million Americans could be uninsured if they choose not to.

According to Fitch, more serious changes to the program, such as implementing work requirements, are not so harmful to providers.

Still, according to Fitch, providers can expect to see a “material” negative impact from the reductions to Medicaid. Providers who have been boosted by the recently expanded Medicaid supplement program will likely be hit hardest.

In the short term, Fitch is least concerned about the possibility of new tariff impacts on the industry.

“We believe that most companies' supply chains and credit profiles can withstand the impact of tariffs on China, Canada and Mexico, particularly on innovative pricing products,” Fitch said.

However, if the Trump administration chooses to make major changes to trade with European countries, the healthcare industry could be more affected. The rating agency also said retaliation from China over tariffs remains a risk for all global manufacturers.