Hospital Declines Seen Persisting as Patients’ Costs Rise

A drop in U.S. hospital admissions that is hurting profit at Community Health Systems Inc., Tenet Healthcare Corp. and other operators may persist as companies and consumers grapple with shifts in health-care economics.

Community Health, the second-largest U.S. hospital system, reduced its full-year earnings forecast yesterday as it said 2013 admissions would fall 1 percent to 3 percent. Tenet, the third-biggest hospital chain, said last month second-quarter admissions would drop 3.5 percent. Community Health shares fell 8.8 percent today, while Tenet lost 2.4 percent.

Hospital admissions have been falling as patients who have seen their deductibles rise put off seeing a doctor and as some types of services are being shifted away from inpatient to outpatient treatment. Hospitals also are being squeezed by the Affordable Care Act and related government efforts to improve care, curb costs and eliminate excessive readmissions.

“We’ve seen such a long trend of weaker volume despite the improving economy and it will be a lasting change for the industry,” Megan Neuburger, a senior director at Fitch Ratings in New York, said in an interview. “A lot of this is a shift from inpatient to outpatient. At some point, there will be a baseline. When do we get to that bottom? No one knows.”

Same-hospital adjusted admissions dropped 2.7 percent industrywide in the first quarter, according to a Fitch report Neuburger wrote in June. The percentage of insured workers with a deductible of $1,000 or more for single coverage jumped to 34 percent in 2012 from 12 percent in 2007, according to a study last year by the Henry J. Kaiser Family Foundation and the Health Research & Education Trust.

HCA Performance

HCA Holdings Inc., the largest publicly traded hospital chain, has so far been the outlier -- saying July 16 that it will report a 1.3 percent gain in same-facility admissions for the second quarter. The Nashville, Tennessee-based company said net income was about 91 cents a share, topping by 13 cents the average of analysts’ estimates compiled by Bloomberg.

Despite HCA’s growth, analysts said hospital operators are experiencing systemic shifts in how they care for and charge patients.

“The bottom line is that the jury is out about whether volume will ever return to hospitals, whether HCA’s increase was real or just a fluke, or if the volume shortfall will carry into next year and eliminate the upside of health reform,” Sheryl Skolnick, an analyst at Stamford, Connecticut-based CRT Capital Group LLC, said in an interview.

Community Health fell to $43.16 at the 4 p.m. close of New York trading. Dallas-based Tenet dropped to $42.65. HCA fell 1.4 percent to $38.63.

Doctor Turnover

Community Health, which operates, owns or leases 135 hospitals in 29 states, said preliminary second-quarter results showed that same-facility admissions dropped 5.7 percent before adjustments. The Franklin, Tennessee-based company is scheduled to release full quarterly results on July 29.

Community Health noted that involuntary physician turnover was a 20 percent factor in the expected decline in same-store inpatient admissions. The health system is known for actively recruiting doctors, and reducing that staff may indicate the volume weakness is expected to persist, Vicki Bryan, an analyst at debt researcher Gimme Credit LLC, said in an interview.

“With these weak volumes, it may be a permanent thing if they’re laying people off,” she said. “They’re culling their physician base, and that’s troubling.”

Federal Probes

At the same time, for-profit hospitals are facing an increasing number of federal investigations into overly aggressive admissions and Medicare and Medicaid billing -- probes that may be further curtailing admissions.

Community Health said it received an additional subpoena July 9 related to a 2011 investigation. Health Management Associates Inc. in April received a subpoena from the U.S. Securities and Exchange Commission requesting documents, including those tied to revenue from Medicare and Medicaid, the government health programs for the elderly and poor, respectively. Tenet hospitals in Atlanta are also under federal investigation, the company said in May.

The investigations may have hospitals more wary about admitting patients, putting them on observation status, which brings in less revenue and hurts inpatient admissions, Bryan said.

Community Health’s report also raises doubt as to whether it may be a potential acquirer of Naples, Florida-based Health Management Associates, which operates 71 U.S. hospitals. Reuters reported in July that the company had attracted interest from Community Health and other competitors.

Community Health’s troubles have the potential to make the company even more interested in Health Management as a tool to expand their base, Brian Tanquilut, an analyst at Jefferies & Co. in Nashville, Tennessee, said in an interview.

“If anything, it can be more imperative to do a deal and get bigger to offset weakness in your business,” he said.

(Updates with share prices in second, ninth paragraphs.)
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