Some perhaps saw the performance as a sign to exit with gains from the strong results since 2014, said Brian Tanquilut, an equity analyst with Jefferies. Increased insurance coverage under the Affordable Care Act since 2014 and an improving economy helped to boost hospital performance staring in early 2014.
Investors fear those gains may be tapering and see limited opportunity for new gains from Medicaid expansion in states that have so far refused to do so, he said. Meanwhile, demand for nurses may put new pressure on hospital margins, he said.
Last fall, hospitals reported higher labor costs from temporary nursing contracts, though executives in San Francisco this week at a healthcare conference reported mixed views on whether nursing demand would continue to be an issue.
Upcoming elections could also lead to greater volatility should presidential hopefuls take aim at healthcare. Some investors may choose to exit the sector ahead of next year's election, Tanquilut said.
Hospital operators have also borrowed to finance mergers and acquisitions that have consolidated the sector, but investor tolerance for the risk that comes with high leverage has diminished with rising energy defaults and the Federal Reserve's decision to raise interest rates last December.
The more leverage companies have, the more sensitive stock prices can be to broad market upheaval, he said. ”It was inevitable that healthcare would take a beating,” in the market upheaval of the last week, he said. “We're tracking oil to figure out where these stocks in healthcare” are going. “Oil has been a key driver of the broader market.”
The rocky market prompted Community Health Systems, Franklin, to delay a planned spinoff of smaller hospitals that was scheduled for the first quarter. The company said in early January the transaction would take place before June 30.