Chains look for stronger second quarter after worrisome first

With the second quarter now in the books but not yet reported, the market will be waiting to see whether patient volumes rebound after a tough first quarter that saw large declines on both the inpatient and outpatient side.

Some early numbers are not encouraging from a market point of view, though they are good news to policymakers and economists concerned about keeping health care costs down.

Lost in the announcement of Tenet Healthcare Corp.'s $4.3 billion deal to buy Vanguard Health Systems was a side note from Tenet Chief Financial Officer Daniel Cancelmi that the company is expecting to report second-quarter admissions that will be 3.5% lower than during the same period the previous year.

As a result, Cancelmi added that the company's adjusted earnings before interest, taxes, depreciation and amortization will come in “toward the low end” of its projected range of $325 million to $375 million when it reports results in early August.

Analysts will be closely watching for a second-quarter volume boost to see whether poor performances from the chains in the first three months of the year were an anomaly or part of a more worrisome trend.

The first-quarter results were noteworthy not just because of declining inpatient volume—which has been happening for some time—but because outpatient volume also dropped. Outpatient care typically has helped boost revenues.

At the time, companies attributed weaker year-over-year patient volume in 2013 to a calendar that included one fewer day (due to the 2012 leap year) and an earlier Easter break, when doctors and patients typically schedule fewer procedures.

To reassure anxious investors, companies like HCA and Health Management Associates made a point on their first-quarter earnings calls to say that admissions did improve in April. HCA said it saw about a 4% increase in admissions for the month, while HMA attested to an improvement without disclosing numbers.

Yet Cancelmi said that while “April came back somewhat,” the month of May “wasn't in line with our expectations.” Nor was June.

Just as the calendar was weighted against Q1, it had the opposite effect on Q2. April this year had an additional business day and no Easter slowdown.

Jessica Nantz, president of Outpatient Healthcare Strategies, said there are a number of trends that may be at play. The increase in high-deductible insurance plans means patients may be delaying procedures until later on in the year—something that systems may see as the year progresses, she said.

But it also could be that patients are forgoing care entirely because of larger copayments and financial responsibility, especially on the outpatient side. “People would most likely choose to first delay elective procedures such as those often performed in outpatient centers,” Nantz said.

Follow Beth Kutscher on Twitter: @MHbkutscher