Hospital stocks, beaten up by investors since late July for their weak second-quarter earnings results, can expect more rough sledding through the end of the year.
Weak admissions and deteriorating payer mix will mark the rest of 2017, said Sheryl Skolnick, director of research covering healthcare equities for Mizuho Securities.
With the large hospital chains all lowering earnings guidance in the quarter and without any visible catalyst to boost volumes through the rest of the year, hospital stocks are likely to continue to struggle, Skolnick said.
"There are fewer people out there," Skolnick said of patients going to the hospital.
Since bellwether HCA led off the second-quarter earnings season July 25, by missing its forecast admissions and earnings performance, hospital stocks as a sector have been in a tailspin.
Community Health Systems, LifePoint Health and Tenet Healthcare Corp. all followed with misses of their own caused by lower-than-expected volumes, especially for hospitalizations.
Tenet, which suffered a $56 million net loss in the quarter, has seen its stock price fall 38% since July 24, closing Monday at $13.02 per share vs. $21.11 before HCA set the tone for the season.
Community Health Systems also continued its string of losses in the quarter. Its stock price closed at $7.36 Monday, down 24% since July 24.
HCA's stock is down 8% since July 24, while LifePoint's is down 10%.
Skolnick said a secular shift is underway that will affect hospital admissions this year and next, at least.
Managed-care companies are giving enrollees incentives to go to lower-cost outpatient settings for care rather than hospital emergency rooms or inpatient surgery suites as a way to save money at no loss of quality, she said.
Hospital systems are competing with independent chains and physician practices to open urgent-care centers, free-standing emergency rooms and sophisticated diagnostic centers that can treat patients for less, Skolnick said.
"They're springing up like daisies," she said.
As managed-care plans seek to save money by directing patients to outpatient settings, it is causing the investor-owned hospital companies to rely more on typically lower-paying Medicare and Medicaid patients, Skolnick said.
Several of the reporting investor-owned companies noted that deterioration of payer mix in their second-quarter earnings.
The hospital chains are banking on a strong finish to 2017, in part, from high-deductible patients who get elective care at year end after meeting their deductibles, Skolnick said.
But after following that trend for years, Skolnick believes that phenomenon is overblown, putting hospital stocks in even greater jeopardy if it doesn't materialize.
"It's scary," she said.