Acute care, for-profit hospitals had a better first quarter than expected, according to a new report by Standard & Poor’s, due mostly to a more diverse payer mix brought about by the Affordable Care Act and a surge in admissions as more Americans have health insurance.
According to the report, the higher rate of insured lifted patient admissions to new levels in the quarter, which resulted in higher profits and greater cash flow.
For example, Hospital Corp. of America saw a 6.8 percent increase in same-facility adjusted admissions for the quarter, its strongest growth in 10 years Meanwhile, Tenet Corp,, another for-profit giant, saw a 4.9 percent jump in total admissions and a 6.2 percent increase in paying admissions.
All of that is also leading to employment growth for these healthcare providers, the report said.
[Also: Fitch gives Tenet 'Negative' credit outlook over deal]
Still, researchers aren’t exactly bullish on the sector, especially with the King v. Burwell decision looming. That ruling could result in a huge number of Americans losing their health insurance subsidies.
“Although we've taken some positive rating actions on hospital companies in 2015 due to better operating performance, we remain cautious about the sector's longer-term prospects given persistent reimbursement pressure, including scheduled future cuts to government subsidies,” the report said.
There’s also the issue of high-deductible plans, which shifts much more of the cost burden to patients and has a seasonal effect since these limits reset at the start of each year.
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“Community Health, for example, noted a $20 million hit to EBITDA compared to the fourth quarter from bad debt expense related to deductibles and copays that reset on Jan. 1. LifePoint noted that copay and deductible revenue before the provision for bad debt increased 29 percent year-over-year in the first quarter, and the company raised its provision for doubtful accounts related to these revenues for the second consecutive quarter,” it said.
Still, the report said many of these people in high-deductible plans were previously uninsured. And since more people are covered, bad debt is falling across the sector.
Twitter: @HenryPowderly