Labs, diagnostic and device companies see depressed earnings

Falling patient volume at hospitals has depressed the earnings not only of healthcare providers but also of the laboratory, diagnostic and medical device companies that work with them.

Intuitive Surgical, the Sunnyvale, Calif.-based developer of the da Vinci robotic surgical system, last week blamed a decline in hospital admissions as well as pushback from payers for a slowdown in robotic surgical procedures, particularly for benign gynecological conditions.

On an earnings call, Gary Guthart, Intuitive's president and CEO, said the company sold 143 systems in the second quarter, or seven fewer than during the same period last year.

The overall admissions rate for benign gynecology procedures is “under pressure,” he said, adding, “Our growth rate in (da Vinci hysterectomy) is sensitive to these admissions.”

Moreover, he cited pressure from payers on the use of hysterectomy as a whole, plus a greater push for treatment in ambulatory settings instead of inpatient settings. The company also has faced other challenges, including what Guthart described as “negative press” regarding the procedure's safety and another FDA warning letter disclosed Thursday.

“Some of these are increasing trends; some are episodic trends,” Guthart said. The company slashed its earnings guidance for the year, saying it now projects revenue growth of no more than 7% in 2013, down from an earlier projection of 16% to 19%.

Brian Tanquilut, an analyst at Jefferies, also pointed to a decrease in physician visits as creating pressure on not only Intuitive but also on Laboratory Corporation of America and Quest Diagnostics. “It's just a broader utilization issue,” he said.

As Intuitive's leadership team braced investors for a tough second half of the year, Community Health Systems, Franklin, Tenn., sounded its own warning in an earnings preview that forecasted an admissions drop of 5.7%.

And Tenet Healthcare Corp., Dallas, similarly said it expects second-quarter admissions to come in 3.5% lower than in the second quarter of 2012.

Quest Diagnostics, Madison, N.J., on Thursday also told analysts that it now expects 2013 revenue to be 1% to 2% below 2012, instead of the 0% to 1% growth it initially forecast.

The company saw a 2.4% decrease in volume, with 1% attributable to Hurricane Sandy in October. But Quest's president and CEO, Stephen Rusckowski, said the company expects the Patient and Protection and Affordable Care Act to have a positive impact on volume in 2014, without disclosing how much.

While more patients may have health insurance in 2014, Moody's Investors Service on Wednesday put out a report noting that the industry's move to “value over volume” will have the biggest impact on medical device makers.

Medical device companies, the credit rating agency said, will need to create a value proposition for how their products will lower readmission rates. Otherwise they're likely to see less utilization of their products as providers put more focus on preventive care that keeps patients out of the hospital.

Follow Beth Kutscher on Twitter: @MHbkutscher