The third quarter is already shaping up to be a difficult one for publicly traded hospital chains, and the full picture will begin to take shape this week as earnings season begins.
Two chains, HCA and Community Health Systems, have already previewed a year-over-year drop in profits. Both companies grappled with higher labor costs and a less favorable payer mix, sparking concerns that the financial benefits of the Affordable Care Act may be starting to wane.
Investors immediately began a sell-off, with Community's shares plummeting about 34% after its earnings preview. Tenet Healthcare Corp. had the second-largest drop among publicly traded chains, taking a 20% hit to its shares.
The Modern Healthcare Hospital Stock Index, which tracks publicly traded hospital chains, fell 12.5% to 607.9 by the close of trading Thursday but rebounded 4.8% Friday to 637.15.
The ripple effect also swept up companies in adjacent fields like hospital staffing firms. Companies including AMN Healthcare Services, Cross Country Healthcare and TeamHealth Holdings each fell more than 20%. Investors fear that hospital operators will put greater pressure on staffing firms in order to keep their rising labor costs in check.
That pressure will come not just from investor-owned chains but across the hospital sector. The improving economy earlier this year led to higher staff turnover, which in turn drove up salary and benefit costs, said Mark Pascaris, an analyst at Moody's Investors Service who covers not-for-profit providers.
Nashville-based HCA, the largest chain by revenue, will host its third-quarter earnings call on Tuesday. Universal Health Services also will report results that day, and LifePoint Hospitals will follow with its result next Friday morning.
Community and Tenet will report their results Nov. 2.
