Healthcare Business News

Rosy Q2 for hospitals, insurers doesn't eliminate long-term challenges: S&P

By Bob Herman
Posted: August 12, 2014 - 6:30 pm ET

Several for-profit hospitals and health insurers have booked improved financial results in the second quarter of the calendar year, thanks in part to healthcare reform, but providers and payers still face headwinds to maintain sustained profitability, Standard & Poor's analysts say in a report.

Several investor-owned hospital chains, including HCA, LifePoint Hospitals, Tenet Healthcare Corp. and Universal Health Services, said in second-quarter earnings reports that the Patient Protection and Affordable Care Act has shifted payer mix for the better and expanded each system's insured base. Many have consequently raised financial expectations for the remainder of 2014 as more covered patients enter their doors.

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Major insurers, such as UnitedHealth Group, WellPoint and Cigna Corp., have similarly boosted guidance despite exchange patients creating a small dent in their profitability.

Hospitals and insurers are likely to continue to benefit from the evolving insurance exchanges and Medicaid expansion for the rest of this year and going into 2015, S&P said. But exchange enrollees and lower-income patients will still represent a minority of their business, cautioned S&P analyst David Peknay.

“We have to keep it in perspective. The change in the number of insured people has still not changed all that much overall,” Peknay said, noting that Medicare and employer-sponsored plans remain the main pipelines for hospitals.

Volumes also have been characterized as healthy among many companies, but variation exists. HCA's equivalent admissions rose 2.2% in the second quarter. In contrast, Community Health Systems said adjusted admissions fell 1.2%.

Further, hospitals may be seeing more insured patients, but there's “also the possibility of one new source of uncompensated business,” Peknay said. Exchange enrollees may be choosing high-deductible health plans, which require patients to pay more of their own healthcare bills.

Insurers have said their newly insured members are generally older and sicker on average than other members, and it's unclear if they will go to the doctor or hospital more frequently—behavior that could run up medical costs.

“It's too early to tell how much in healthcare services (those patients) are going to utilize,” said James Sung, an S&P analyst and co-author of the report.

S&P currently has a stable outlook for health insurers. The rating agency is maintaining its negative outlook for hospitals despite the early positive news because they still must grapple with reductions in disproportionate-share funding and reimbursement cuts.

Follow Bob Herman on Twitter: @MHbherman

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