Mednax, HCA feel the sting of managed-care patient management
The first-quarter earnings season for hospital companies hasn't officially begun and already a second large provider has previewed a net earnings drop for the quarter.
Physician staffing giant Mednax announced Thursday that its first quarter net income is expected to drop to $55 million compared to $68 million in the year-period. The company said lighter volumes in the neo-natalogy departments it staffs and a worsening payer mix in anesthesiology caused the anticipated income fall.
Mednax's shifting payer mix signals that managed care companies may be sending more surgery patients to outside facilities rather than hospitals for procedures, which affects the revenue that hospital-based anesthesiologists can produce.
Mednax said it expects to report a 2% decline in revenue coming from same-unit neonatal volumes in the first quarter—a trend that management has attributed to declining U.S. birth rates overall.
Mednax could also be affected by managed-care companies who run state Medicaid programs. The MCOs are better at encouraging soon-to-be mothers to receive pre-natal care, which helps keep their babies out of the intensive care units, according to Sheryl Skolnick, director of research at the investment bank Mizuho Securities USA.
Though Mednax's revenue rose to $836 million in the first quarter from $753 million, EBITDA fell to $132 million compared with $144 million in the year-ago period, the company said.
A Mednax spokesman declined to comment because the company is in a quiet period before official earnings are announced next month.
Mednax's anesthesiologists, who provide anesthesiology services inside hospitals, saw their mix of government-insured patients rise and commercially insured patients decline in the first quarter ended March 31, compared to a year earlier.
With the earnings miss, Fort Lauderdale, Fla.-based Mednax joins HCA Holdings in getting the hospital earnings season off to an inauspicious start.
Like Mednax, Nashville-based HCA said a deterioriating payer mix from commercial managed care to Medicare and Medicaid contributed to its first-quarter results.
That deteriorating payer mix at HCA and Mednax reflect the long-awaited onset of value-based and bundled reimbursement that all hospitals and providers must reckon with, Skolnick said.
Value-based reimbursement is the antithesis of fee-for-service in that it pays hospitals and providers a premium for seeing patients in the most cost-effective setting for their ailments rather than for absolute volume.
Skolnick believes HCA suffered its rare earnings miss because managed care-paid admissions as a portion of total volume slipped to 27.4% from 28.6% the year-earlier.
Meantime, HCA's Medicare and Medicaid-paid admissions rose to 48.1% from 47% over the same period.
Skolnick said commercial managed-care companies are better than Medicare at keeping patients out of the hospital because they send them to less-costly facilities when possible, such as ambulatory surgery centers and physician offices.
Losing those high-paying admissions is a problem for hospitals, even if the admissions are going to a system's own non-acute facilities, Skolnick said. In the case of HCA, the hospital giant generates about $20,000 per admission from managed care-covered patients and half that from Medicare, Skolnick's analysis shows.
If that trend continues, value-based reimbursement could become more prevalent and health systems will see additional pressures on their bottom lines, Skolnick said. HCA is the nation's largest investor-owned hospital company with 169 hospitals.
HCA officially announces its first-quarter earnings on May 2 and Mednax on May 4. They are among the first providers to report their quarterly financial results.
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