On the decline
More hospital operators uncertain as acuity falls
Evidence emerged last week that HCA is not the only hospital operator seeing a decline in acuity among Medicare patients, as Tenet Healthcare Corp. reported an unusually large decline in Medicare acuity for July and August. HCA, too, said Medicare acuity fell for the first two months of the third quarter.
Nashville-based HCA also tried to better explain during a conference call why Medicare acuity fell in the second quarter, causing a $74 million revenue shortfall. About half of the revenue decline came on factors that are likely to recur, mostly related to the lower acuity of its Medicare patients, according to the company. The company’s shares have plunged since it reported that shortfall in July, so HCA also announced last week that it will spend $1.5 billion to buyout most of Bank of Ameri- ca’s stake in the company. The move will reduce the number of shares outstanding for the company, giving a boost to earnings per share.
HCA also noted the favorable impact of refinancing its debt at lower rates and the expected earnings contribution from buying out its notfor-profit partner in the HealthOne joint venture in Denver.
Comparing its Medicare business for the second quarters of 2010 and 2011, HCA found that its cardiovascular surgery cases fell 769 and its cardiovascular medical cases rose 540, probably in part because cardiovascular is a service line with more scope for substituting among different treatments, Sam Hazen, HCA’s president of operations, said during the call. Demand for cardiovascular services industry-wide have been falling by about 3% annually, according to HCA.
Across all service lines, HCA had 540 fewer Medicare surgery cases in 2011’s second quarter, but 4,588 more Medicare medical cases, leading to a 1.2% decline in Medicare case-mix index for the quarter. For July and August, the decline in Medicare case mix was 2%.
Lower acuity joins healthcare reform and the Budget Control Act as major factors boosting uncertainty for the industry, Trevor Fetter, president and CEO of Tenet, told investors last week. “We’re in a period of greater uncertainty than I’ve ever seen in 15 years in this business,” Fetter said at the Morgan Stanley Global Healthcare Conference.
For Dallas-based Tenet, Medicare acuity has been trending down, Fetter said, but in July and August, the decline was three to four times as large as the recent trend, and the commercial rise was not enough to offset it. Another factor affecting Tenet’s results is that three-quarters of the growth in its volumes is coming from Medicaid patients, according to a Tenet news release.
Tenet expects to reach only the low end of its expected range for 2011 earnings before interest, taxes, depreciation and amortization of $1.18 billion to $1.28 billion, according to the release. Fetter noted that that range was increased earlier in the year.