Early Q2 financials show reform benefiting hospitals' bottom lines

Healthcare reform is producing positive financial benefits for publicly traded hospitals, if early Q2 earnings releases are any indication of what to expect from other systems when they report quarterly results.

LifePoint Hospitals reported a 44.3% increase in income from continuing operations for the second quarter and raised its financial projections for the full year. The publicly traded chain attributed the results to volume growth, expense management, new acquisitions and a better-than-expected benefit from healthcare reform.

Universal Health Services, which also held an earnings call Friday, similarly attributed an earnings improvement in its acute-care business to healthcare reform.

Brentwood, Tenn.-based LifePoint reported second-quarter income of $39.1 million on revenue of $1 billion compared with $27.1 million on revenue of $894.9 million.

“We've worked hard to position ourselves for the benefits of healthcare reform, and those efforts are already paying off beyond our initial expectations,” said CEO William Carpenter on an earnings call.

Second-quarter admissions declined 2.1% compared to the same period in 2013, but equivalent admissions increased 2%. In addition, the chain saw a 3.7% increase in emergency department visits and a 3.3% increase in surgical volumes.

LifePoint also saw a 6.7% reduction in one-day stays, but Chief Financial Officer Leif Murphy said the company believes the fall-off reflects industry trends and not the controversial two-midnight rule.

Revenue per equivalent admission increased 2.5%, primarily due to higher contracted rates from commercial insurers and the favorable impact from healthcare reform, Murphy said. The overall impact from insurance expansion in the second quarter was $12 million to $13 million in earnings before interest, taxes, depreciation and amortization, he added.

Self-pay patients declined 34% and represented 4.8% of admissions in the second quarter, down from 7.1% in the year-ago period. The chain's emergency departments saw 19% fewer self-pay patients, representing 16.6% of patients compared with 21.4% in the second quarter of last year, Murphy said.

LifePoint raised its 2014 financial guidance for net revenue to $4.3 billion to $4.4 billion and earnings per share to $2.99 to $3.19—an increase from the $4 billion to $4.1 billion in net revenue and $2.38 to $2.78 in earnings per share it had forecast at the beginning of the year.

Healthcare reform is expected to add $40 million to $50 million to EBITDA for the full year, above the chain's previous projections, Murphy said.

“We're excited about our experience with reform so far and we expect that as more states expand (Medicaid) coverage it will become a more meaningful part of our results,” he said.

UHS reported that adjusted acute-care admissions increased 3.6%, and the King of Prussa, Pa.-based chain saw a 7.7% increase in revenue per adjusted admission.

Its acute-care operating margin increased to 19.2% in the second quarter, up from 14.8% in the prior-year period.

In contrast, admissions at its behavioral health hospitals increased 4.4%, but the division's operating margin was 28.6%, down slightly from 28.7% in the year-ago period.

UHS, which Thursday reported net income that was essentially flat for the quarter, did raise its financial guidance for the full year. It is now projecting earnings per share of $5 to $5.55, up 15% to 16% from the initial $4.80 to $5.10 forecast.

Investors liked what they saw. LifePoint's shares spiked 15.2% when they opened for trading after the early morning results. UHS shares opened 7.6% higher.

Follow Beth Kutscher on Twitter: @MHbkutscher