Earn­ings out­look good for pub­licly traded hospi­tal com­pa­nies

Modern Healthcare - - NEWS - By Beth Kutscher

Sec­ond-quar­ter earn­ings for pub­licly traded hospi­tal com­pa­nies are ex­pected to please in­vestors thanks to the ini­tial bot­tom-line im­pact of health­care re­form and Med­i­caid ex­pan­sion in var­i­ous states where the com­pa­nies op­er­ate, an­a­lysts agree.

Earn­ings also will ben­e­fit in com­par­i­son to a first quar­ter in which bad weather af­fected hospi­tal uti­liza­tion rates. Open en­roll­ment in in­sur­ance ex­changes tech­ni­cally had ended be­fore the quar­ter be­gan, so the full im­pact of that process should start be­ing seen in re­sults. And chains with op­er­a­tions in Michi­gan should see a ben­e­fit from the April 1 Med­i­caid ex­pan­sion in that state, as have those in other ex­pan­sion states.

In­deed, in the first quar­ter, chains were al­ready see­ing some re­duc­tion in un­com­pen­sated care while open en­roll­ment was still on­go­ing and be­fore Michi­gan’s ex­pan­sion.

“I think vol­umes will be bet­ter in the sec­ond quar­ter com­pared to the first,” said Brian Tan­quilut, an an­a­lyst at Jef­feries & Co. “Based on the checks that we’ve done, it seems like the ex­changes are work­ing in some key states.”

One en­cour­ag­ing sign is that uti­liza­tion is pick­ing up even for elec­tive and nonur­gent pro­ce­dures such as MRIs and ul­tra­sounds, he said.

As of April 19, a to­tal of 8 mil­lion people had selected a plan from a health in­sur­ance mar­ket­place out of a to­tal of 13.5 mil­lion el­i­gi­ble in­di­vid­u­als, or 59%, ac­cord­ing to the Kaiser Fam­ily Foun­da­tion. In some states, such as Cal­i­for­nia, as many as 74% of el­i­gi­ble res­i­dents pur­chased a health plan from its state-run ex­change.

In con­trast, only 53% of el­i­gi­ble Texas res­i­dents and 49.5% of those in Ten­nessee signed up for health in­sur­ance through the federal ex­change. Florida, which has a high unin­sured pop­u­la­tion and a heavy con­cen­tra­tion of for-profit hos­pi­tals, saw 61% of el­i­gi­ble res­i­dents buy cov­er­age through the federal ex­change.

The vol­ume boost, there­fore, is likely to de­pend on where each chain’s hos- pitals are lo­cated.

“Sen­ti­ments for Q2 are pos­i­tive, but the re­sults could come out a lit­tle bit choppy,” said Paula Torch, an an­a­lyst at Avon­dale Part­ners. “Vol­umes are still un­cer­tain.”

The bulk of the ben­e­fit from the Pa­tient Pro­tec­tion and Af­ford­able Care Act will come from re­duc­tions in char­ity care or bad debt, said Me­gan Neuburger, an an­a­lyst at Fitch Rat­ings. “From our per­spec­tive, we never ex­pected the ACA to be a vol­umes story,” she said.

More­over, the most sig­nif­i­cant fi­nan­cial boost is com­ing not from ex­change en­roll­ment, but a state’s de­ci­sion on whether to ex­pand Med­i­caid for low-in­come adults. “That’s re­ally where you could see that the dif­fer­ence was very dra­matic,” Neuburger said. “As we go down the road, it’s go­ing to be hard to ig­nore the fi­nan­cial in­cen­tives for ex­pan­sion.”

HCA, the largest chain by rev­enue, last quar­ter re­ported that health­care re­form had only a min­i­mal im­pact on its fi­nan­cial re­sults. But only four of the 20 states in which the Nashville-based com­pany op­er­ates elected to ex­pand Med­i­caid.

Still, in­vestors like the com­pany’s prospects. Just weeks be­fore earn­ings re­sults are an­tic­i­pated, shares of HCA are trad­ing at an all-time high, top­ping $57. The com­pany has not yet set a date for its sec­ond-quar­ter earn­ings re­lease.

Tenet Health­care Corp., which has a sim­i­lar ur­ban fo­cus to HCA, has been par­tic­u­larly bullish on health­care re­form, and ex­pects a 15% re­duc­tion in un­com­pen­sated-care vol­ume this year.

The Dal­las-based chain saw its unin­sured and char­ity-care ad­mis­sions drop by a third in the first quar­ter with four of its 14 states ex­pand­ing Med­i­caid. Tenet also has the most to gain from Med­i­caid ex­pan­sion in Michi­gan, a state it en­tered last year through its ac­qui­si­tion of Van­guard Health Sys­tems.

In the lead-up to earn­ings sea­son, its shares have re­bounded to the high $40s af­ter dip­ping un­der $40 in March and April.

The story has been sim­i­lar at Com­mu­nity Health Sys­tems, which in Jan­uary be­came the largest chain by hospi­tal count when it ab­sorbed Health Man­age­ment As­so­ciates. The Franklin, Tenn.-based chain has a ru­ral fo­cus, but also fore­casted a 15% de­crease in unin­sured vol­umes for 2014.

It’s al­ready seen a 15% drop in self-pay pa­tients in the first quar­ter, but still re­ported a net loss.

Its shares have gained about $11 since reach­ing their 52-week low of $34.55 in mid-April.

Trends in in­pa­tient uti­liza­tion in com­mu­nity hos­pi­tals

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