Hospital giants brace for rough Q3 earnings
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September 29, 2017 01:00 AM

Hospital giants brace for rough Q3 earnings

Dave Barkholz
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    Investor-owned providers expect to see a dent in their third-quarter earnings as they cope with the aftermath of two hurricanes and soft admissions.

    While the challenges posed by hurricanes Harvey and Irma may pass quickly, providers will have to come to terms with a slumping admissions trend that won't go away.

    Until a year ago, hospital admissions rose at about 3% to 4% annually as states expanded Medicaid under the Affordable Care Act and millions of newly insured went to hospitals. That has moderated to annualized growth of about 1% to 2% in recent quarters.

    Hospitals have seen admissions dwindle thanks to new technology that allows complex surgeries, including knee replacement and other orthopedic procedures, to be performed on an outpatient basis rather than inpatient, according to Scott Phillips, managing director of the healthcare consultancy Healthcare Management Partners in Nashville.

    Value-based reimbursement also is pushing care to the lowest-cost setting, he said.

    "Don't expect a shift in these trends over the next three to five years," Phillips said.

    Dallas-based Tenet Healthcare Corp. and HCA, the nation's largest hospital company, lowered their 2017 earnings guidance after the second quarter because of softening admissions.

    HCA's admissions in the second quarter rose just 1%. Tenet posted a second-quarter loss on continuing operations of $56 million on a 1.4% decline in adjusted admissions. And Community Health Systems in the second quarter also saw admissions slump 2.5% at the hospitals it's owned at least a year.

    Consumers want the convenience and cost of outpatient procedures over inpatient care, and that's a reality that some hospital systems are transitioning to faster than others, said Larry Prybil, a healthcare professor at the University of Kentucky.

    "People don't want to sit in a hospital waiting room for an MRI," Prybil said. "They want to walk down the street to get one through an appointment they made on their phone."

    Many of the investor-owned chains also have sizable operations in Texas and Florida, where major hurricanes Harvey and Irma hit.

    HCA has 14 hospitals in South Florida and 46 across the state as well as 13 hospitals in the Houston area, including three it bought in August from Tenet for $750 million.

    Tenet has 10 hospitals in South Florida. And CHS owns several hospitals along Florida's Gulf Coast, as well as a hospital in the Florida Keys that closed while Irma passed.

    So far, the chains aren't publicly discussing the extent of hurricane-related losses from business interruptions, particularly for outpatient visits and elective surgeries. Each declined to comment.

    But Moody's Investors Service this month said that Florida hospitals generally "dodged a bullet" with Irma, suffering minimal physical damage and reopening outpatient operations quickly to limit business interruptions.

    But that hasn't assuaged everyone's concerns. Catholic Health Initiatives Chief Financial Officer Dean Swindle told analysts on Friday that CHI is looking into how insurance might pay for damage and business interruption at its Houston hospitals during Hurricane Harvey.

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