Hospital stocks plunged after Community Health Systems revealed disappointing results in the third quarter. The Modern Healthcare Hospital Stock Index, which tracks publicly traded hospital chains, fell 12.5% to 607.9 before rebounding 4.8% to 637.2 Friday. Investors have been watching for signs that the financial upside from the Affordable Care Act might be waning.
CHS said patient admissions fell about 2% at its established locations in the quarter, and it saw a decrease in the percentage of people covered by commercial insurance, which offers the best reimbursement.
At the same time, the system hired more physicians, which meant higher salary and benefit expenses. CHS also incurred higher costs associated with the transition to ICD-10 billing codes and an increase in drug prices.
The Franklin, Tenn.-based chain is the second investor-owned hospital operator to preview quarterly earnings results that are below analyst expectations. Last year set a high bar for publicly traded hospital chains as newly insured patients flocked to providers with their pent-up healthcare needs.
Community's earnings preview came a week after HCA Holdings also said it would miss expectations for the quarter, and that it had been hit by higher labor costs and a greater percentage of uninsured patients.
Analysts said they don't see a lot of common themes in the previews so far, and they aren't sure whether disappointing patient totals will continue at these hospitals.
But Matthew Borsch, a Goldman Sachs analyst, said in a research note that hospitals have seen several quarters of patient growth as the ACA has expanded healthcare coverage to the uninsured, and this may be a “big chill” on that.
Hospitals generally do more business in the year's final quarter. Many patients have met their insurance deductibles by then, the amount they have to pay out of pocket before most coverage starts. They then try to schedule treatments such as elective surgeries in the final months of the year before deductible amounts renew in January.
Analysts expect business to improve in the fourth quarter.
CHS, meanwhile, has been rethinking its portfolio. In its biggest move, it will spin off 38 rural hospitals under a new operating company known as Quorum Health Corp. The divestiture will allow the hospital chain to focus on creating regional networks in its larger markets.