Companies including HCA Healthcare Inc, the largest for-profit
hospital operator, and Tenet Healthcare Corp have reported dismal
quarterly results and cut their forecasts for the year.
High-deductible health plans - which shift initial medical costs to
patients, but have lower monthly premiums - are becoming popular,
resulting in patients pushing back non-emergency surgeries.
Tenet saw weakness in elective procedures including orthopedics,
Eric Evans, the company's president of hospital operations, said
earlier this month.
"That does play into the story of deductibles rising and changing
behaviors."
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Also, HCA, Tenet, and rivals such as Community Health Systems Inc
enjoyed a surge in admissions in 2014 and 2015, thanks to the
Affordable Care Act, popularly known as Obamacare. But with big
insurers reducing exposure to the program since last year, results
for hospital operators are suffering in comparison, analysts said.
HCA is expected to grow at a compound annual rate (CAGR) of 4.8
percent through this year and the next, down from 6.7 percent growth
over the last three years. Tenet's CAGR is expected to plunge to 0.2
percent from 21 percent.
In what could be a trend, December quarters going forward could
perform better than the traditionally strong first half, as patients
push out surgeries to the end of the year.
"I think the seasonality is changing, somewhat, where the fourth
quarter is really shaping up to be the biggest quarter because of
all the people deferring things until their co-pays are deductible,"
said J.P. Morgan analyst Gary Taylor.
WEAK FUNDAMENTALS
High-deductible plans have been around for over a decade but have
become more popular as wage rises fail to keep up with rising
medical costs, said Bret Schroeder, healthcare expert at PA
Consulting Group.
Participation in high-deductible plans in the five years through
January 2016 has risen about 76 percent, according to lobby group
America's Health Insurance Plans.
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While this has been a problem for all hospital operators, HCA, with
its well-capitalized balance sheet and strong cash flow, is best
positioned to weather the storm, analysts said.
HCA shares have risen 6 percent so far this year.
But for Tenet and Community Health, these problems add to piles of
debt, which they have been trying to repay by selling assets.
Both companies recently faced shareholder activism, boosting shares.
Tenet's largest shareholder on Friday signaled it would take a more
activist stance, while Community Health's board on Monday received a
letter from an investor pushing for the replacement of its CEO.
Tenet Healthcare, which had fallen 15 percent this year until
Thursday, has more than recouped losses. Community Health has risen
30 percent this year.
Still, fundamental problems at the companies remain.
"All of the rebound ... has been related to strategic alternatives,
shareholder activism, the possibility of sale, divestiture," said
Taylor, adding that investors were hoping to unlock some value by
selling parts, or all, of the companies.
(Reporting by Ankur Banerjee and Divya Grover in Bengaluru; Editing
by Sayantani Ghosh)
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