If Tenet Healthcare Corp. is any indication, continued COVID-19 surges may have made the third quarter particularly challenging for investor-owned hospital chains.
Florida and Texas, both of which are home to many for-profit hospitals, were major coronavirus hot spots in July and August. Responding to COVID spikes is expensive for hospitals, and the spikes tend to dissuade patients from seeking care for non-COVID issues.
Tenet is the only for-profit hospital company that's released its full results for the third quarter, which ended Sept. 30. Two of its peers are scheduled to do so next week.
"Early in the third quarter there was still a decent amount of disruption," said Brian Tanquilut, a healthcare analyst with Jefferies.
Tenet's CEO said the third quarter was even more challenging than the second, which ended June 30, despite elective procedures being largely shut down in the earlier quarter. That's because the company treated about 60% more COVID patients across its hospitals in the third quarter compared with the second.
However, Tanquilut said there's some evidence surgery centers are picking up patients who are avoiding hospitals, which could be a modest upside. That certainly is the case for Tenet, whose ambulatory surgery cases, for example, were at 96% of their prior-year levels in September.
Emergency department visits continue to lag behind other areas, however. Tenet said its ED visits were just 74% of their prior-year levels in September. In a sneak peek of its third quarter results, HCA Healthcare said it expects same-facility ED visits to be 80% of prior-year levels.
Hospitals tend to see volume lulls in July and August because that's usually when patients and providers take vacations, said A.J. Rice, managing director of equity research for Credit Suisse. In the third quarter of 2020, however, that trend will be partially offset by people coming back for procedures they deferred in the second quarter when elective procedures were largely shut down in many areas.
As Tenet and HCA have already shown, hospitals' revenue per admission is shaping up to be off-the-charts high in the third quarter. Tenet explained in its earnings call Wednesday that its 17% increase in net revenue per adjusted admission is due to three factors: higher acuity patients, a stronger mix of commercial patients and revenue growth from Tenet's contracted physicians. HCA's was up 15% year-over-year.
Rice said that's largely because only the most intensive procedures are the ones that continue to stay in hospitals. Others are either filtered out to surgery centers—as many patients continue to avoid hospitals—or put off until later.
Cost cutting will also continue to be a major focus. HCA's preliminary operating income figure of $950 million before income taxes in the third quarter suggests continued success with cost cutting, Rice said. HCA managed to slash its expenses by a striking 16.6% in the second quarter.
Hospitals also will likely have recognized more of their Provider Relief Fund grants in the second quarter than the third, potentially boosting their profit and earnings in the earlier quarter. Much of HCA's $1.1 billion profit in the second quarter was comprised of the grant money, which the company later announced it was giving back.
"I don't think anybody booked all of it, but the vast majority of it was booked in the second quarter results," said Stephen Tanal, a senior research analyst with SVB Leerink.
In the long run, Rice said he thinks the trajectory of the broader economic recovery will have big implications for hospitals. Whether patients have commercial insurance or Medicaid makes a significant difference in terms of profitability.
"We'll be looking to see how that plays out," Rice said.