Buoyed by out­pa­tient growth

De­spite hur­dles, for-prof­its re­port rev­enue gains

Modern Healthcare - - THE WEEK IN HEALTHCARE - Beth Kutscher

Pub­licly traded hospi­tal groups marked a first quar­ter that con­tin­ued to see shrink­ing vol­umes and re­duced re­im­burse­ment, but was boosted by out­pa­tient growth and pay­ments from the CMS.

The seven largest hospi­tal chains re­ported in­creases in pa­tient rev­enues—de­spite chal­lenges such as a mild flu sea­son, de­clines in less-acute care such as ob­stet­rics, and Med­i­caid and Medi­care re­im­burse­ment cuts. An­a­lysts who fol­low the sec­tor also pointed to the sys­tems’ suc­cess­ful at­tempts to con­trol costs as well as a boost from ac­qui­si­tions.

Me­gan Neuburger, an an­a­lyst at Fitch Rat­ings who cov­ers the for-profit hospi­tal sec­tor, noted that there were “no real sur­prises,” just con­tin­ued weak or­ganic trends.

Hos­pi­tals at­tempted to over­come some of those trends by shift­ing more of their ser­vices from in­pa­tient to out­pa­tient. In­deed, while same-fa­cil­ity ad­mis­sions de­clined at many of the chains, ad­justed ad­mis­sions— an in­dus­try for­mula that takes into ac­count in­pa­tient and out­pa­tient ac­tiv­ity—saw growth at most sys­tems.

Not only are out­pa­tient ser­vices less costly to de­liver, but they tend to draw more pa­tients with com­mer­cial health plans. The shift al­lowed the chains to re­port a 4% to 5% in­crease in same­fa­cil­ity rev­enue and de­liver a quar­ter that beat an­a­lysts’ ex­pec­ta­tions, said Frank Mor­gan, an an­a­lyst at RBC Cap­i­tal Mar­kets.

A strong show­ing in out­pa­tient ser­vices was one of the fac­tors that buoyed the re­sults of Lifepoint Hos­pi­tals, Brent­wood, Tenn. Its same-fa­cil­ity rev­enue grew 4.2% even though ad­mis­sions de­clined 3.9%.

In his re­port on the com­pany, Mor­gan high­lighted Lifepoint’s “im­pres­sive” growth in out­pa­tient ser­vices—par­tic­u­larly in car­di­ol­ogy, on­col­ogy and imag­ing—which al­lowed it to in­crease rev­enue from com­mer­cial pay­ers. As the sys­tem de­liv­ered more out­pa­tient ser­vices, its ad­justed ad­mis­sions were es­sen­tially flat, de­clin­ing only 0.4%.

Health Man­age­ment As­so­ciates, Naples, Fla., had a sim­i­lar quar­ter. Its same-fa­cil­ity rev­enue in­creased 5.7%, even as ad­mis­sions de­clined 4.2%. Mor­gan at­trib­uted HMA’S rev­enue growth to strong out­pa­tient ac­tiv­ity (re­flected in ad­justed ad­mis­sions that showed a de­cline of only 0.2%) as well as a grow­ing num­ber of pro­ce­dures per­formed in ortho­pe­dics, spinal im­plants and car­di­ol­ogy.

While vol­umes were a sore point across the sec­tor, Com­mu­nity Health Sys­tems, Brent­wood, Tenn., sur­prised an­a­lysts—and it­self— with a 2.5% bump in ad­justed ad­mis­sions, the best in­crease in more than three years, Mor­gan said. The com­pany had fore­casted a 3% to 5% de­cline for the quar­ter.

Com­mu­nity is cur­rently the sub­ject of a num­ber of in­ves­ti­ga­tions into its ad­mis­sions prac­tices—which led to what the com­pany de­scribed as quick, but less ef­fec­tive changes. “There’s no ques­tion that af­ter we came un­der sig­nif­i­cant scru­tiny, we over­re­acted,” said Wayne Smith, pres­i­dent and CEO, on the com­pany’s earn­ings call. “We were not as de­lib­er­ate as we could have been or should have been in terms of our process in ed­u­ca­tion and train­ing.”

Across the sec­tor, mar­ket fac­tors also played a role in re­sults. Neuburger noted that, on the whole, ru­ral mar­kets ex­pe­ri­enced a more chal­leng­ing quar­ter than ur­ban ones— ow­ing in part to weaker de­mand for less-acute care such as flu and ob­stet­rics.

Ex­po­sure to the eco­nom­i­cally de­pressed Las Ve­gas mar­ket also af­fected re­sults from Univer­sal Health Ser­vices, King of Prus­sia, Pa., which saw a 0.8% de­cline in same-fa­cil­ity rev­enue per ad­justed ad­mis­sion in its acute­care seg­ment. The growth in un­em­ploy­ment in the re­gion meant UHS had to grap­ple with more Med­i­caid and self-pay pa­tients at those fa­cil­i­ties, Mor­gan said.

De­spite the choppy re­im­burse­ment picture, nearly all of the sys­tems re­ported ad­di­tional in­come from an in­dus­try­wide set­tle­ment agree­ment with the CMS on April 5. The set­tle­ment re­solved sev­eral fed­eral law­suits chal­leng­ing the way the agency cal­cu­lated the ru­ral floor pro­vi­sion of the Bal­anced Bud­get Act of 1997.

While the to­tal set­tle­ment agree­ment is undis­closed, pub­licly traded groups of­fered the first glimpse into a deal that ex­perts say could top $3 bil­lion. About 2,200 hos­pi­tals are ex­pected to re­ceive funds. In­di­vid­ual pay­outs ran the gamut: HCA, Nashville, said it re­ceived $271 mil­lion from the agree­ment, while Tenet Health­care Corp, Dal­las, recorded $84 mil­lion. Univer­sal Health Ser­vices said its share amounted to $35 mil­lion.

Michael Water­house, a health­care an­a­lyst with Morn­ingstar, noted that while the sys­tems have done a good job of con­trol­ling costs so far, “low-hang­ing fruit has es­sen­tially dis­ap­peared”—which means hos­pi­tals could find it harder to scale back as vol­umes and re­im­burse­ment con­tinue to face pres­sure.

Hos­pi­tals also are com­ing off a low-spend­ing cy­cle and may soon need to make the cap­i­tal ex­pen­di­tures they have been putting on hold. “We just think the cash po­si­tion for all these hos­pi­tals is go­ing to be squeezed,” Water­house said. Nev­er­the­less, the an­a­lysts noted that they ex­pect the pub­licly traded groups to con­tinue to de­ploy their cash for ac­qui­si­tions, par­tic­u­larly of not-for-profit hos­pi­tals. Ac­qui­si­tions were al­ready one of the fac­tors help­ing to drive rev­enue growth at sys­tems such as Lifepoint, HMA and Van­guard Health Sys­tems, Nashville.

Water­house also noted that he ex­pected to see more buys of out­pa­tient fa­cil­i­ties and physi­cian groups in or­der to at­tract more com­mer­cial pay­ers.

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