Buoyed by outpatient growth
Despite hurdles, for-profits report revenue gains
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.