In a quarter when many investors had braced themselves for bad news, LifePoint Health bested expectations, highlighting strong cost controls and the benefit of acquisitions even amid same-hospital admission declines.
The Brentwood, Tenn.-based chain improved its operating margin in the third quarter and reported a 58.4% increase in net income.
“The company continues to manage expenses to its business very well and we believe that (LifePoint) may have been insulated from some of the labor cost issues which pressured the rest of the hospital space,” Paula Torch, an analyst at Avondale Partners, wrote in a note to clients.
LifePoint reported third-quarter net income of $43.6 million on $1.3 billion in revenue compared with $27.5 million in net income on $1.2 billion in revenue during the same period last year. Its operating margin improved to 3.5% from the prior-year period's 2.5% as its expenses increased at a slower rate than revenue.
The company has been an active consolidator in the hospital sector, both on its own and through its joint ventures with not-for-profit systems.
In the third quarter, it added three hospitals and also forged a deal to acquire Providence Hospital and Providence Orthopedic Hospital in Columbia, S.C., from Sisters of Charity Health System. The newly acquired hospitals were Fleming County Hospital in Flemingsburg, Ky., Clark Memorial Hospital in Jeffersonville, Ind., and Watertown (Wis.) Regional Medical Center, which together added $300 million in annual revenue.
The deals contributed to an overall increase in patient volume, but on a same-hospital basis, admissions declined 4.7% and inpatient surgeries fell 4.9%. Most of the reduction came from lower-acuity services, said Leif Murphy, LifePoint's chief financial officer, on an earnings call. Admissions adjusted for outpatient activity were up 0.1% while outpatient surgeries were flat.
“While we're not satisfied with volumes for the quarter, our financial performance was strong,” CEO William Carpenter said on the call. More than 60% of the chain's business now comes from outpatient services, he added.
The chain also saw higher reimbursement rates from its commercial payers, leading to a 2.3% increase in same-hospital revenue per adjusted admission.
Same-hospital self-pay admissions declined 8.3% to represent 5.1% of admissions, down from 5.3% in the third quarter of last year.
“The Medicaid expansion math has continued to evolve,” Carpenter said, adding that nine of LifePoint's 21 states have expanded Medicaid. “Ultimately we believe every state will do so. … We believe the incremental benefit from healthcare reform lies ahead of us.”
Over the past two years, LifePoint also has acquired $1.8 billion in annualized net revenue through acquisitions, Carpenter said, and has been able to take those hospitals from break-even margins to low double-digit margins.