Despite a dismal period for managed-care and home-care companies, providers maintained strong earnings growth in the third quarter ended Sept. 30 compared with the year-ago quarter, according to WDI Capital Markets.
The Hilton Head Island, S.C.-based investment banking firm reported that providers posted earnings growth of 17% in the quarter, compared with 13% for the healthcare industry as a whole.
WDI tracks the performance of more than 650 publicly traded healthcare companies. The figures are adjusted earnings that don't include one-time write-offs.
Managed-care companies continued to show slippage in profit growth in the third quarter, WDI reported. Adjusted earnings increased just 6% on a 24% growth in revenues. Earnings growth began eroding in the second quarter, when managed-care companies posted a 26.8% increase in profits. That's a long way from the 45% rise in 1994 and 56% in 1993.
"Solid performances by a number of companies are being overshadowed by pricing pressures and relationship issues with physicians and clients," said John Cumming, WDI president. "Look for accelerated consolidation during the next 18 months."
Meanwhile, hospital companies maintained a strong forward stride with a 34% rise in adjusted earnings on 28% growth in revenues. Industry leader Columbia/HCA Healthcare Corp., based in Nashville, Tenn., reported a 40% increase in adjusted earnings on a 19% rise in revenues. Two other hospital chains, Nashville-based OrNda HealthCorp and Brentwood, Tenn.-based Quorum Health Group, posted earnings gains of 33% and 27%, respectively, WDI said.
Another strong performance came from outpatient companies, which reported an adjusted earnings increase of 37% on a 33% increase in revenues. Particularly active in that sector were two kidney dialysis chains: Total Renal Care, Torrance, Calif., and Vivra, Bur-lingame, Calif. Total Renal Care reported a 36% growth in adjusted profits on a 31% increase in revenues.
Also in the provider segment, long-term-care companies posted hearty earnings growth. WDI reported adjusted earnings growth of 28% on a 16% increase in revenues.
On the downside, home-care companies saw a 17% decrease in adjusted earnings on a 19.8% increase in revenues. Coram Healthcare Corp., a Denver-based home-care chain that took write-offs of more than $200 million during the third quarter, posted a 5% increase in adjusted earnings.
On the vendor side, medical device and supply companies reported adjusted earnings growth of 15% on a 12% increase in revenues. Among pharmaceutical companies, earnings grew 8% on a 14.8% increase in revenues.