Why Hospital CEOs Are Impatiently Waiting for the Obamacare Bump

Though for-profit hospital chains have been dogged by deteriorating patient admissions in recent quarters due to the stagnant economy, a boost in newly insured patients is on the way. Growth will be slow and gradual.

Jul 19, 2014 at 12:00PM

The hospital industry, dogged by a weak economy, may be poised for an uptick in admissions thanks to millions of newly insured customers under the Affordable Care Act.

And that's good news for investors in for-profit hospital company stocks who have wondered when medical-care providers would catch up with the run-up in stock prices experienced by health insurers that have already been benefiting from the law.

Though millions of Americans began slowly signing up for health insurance last October, hospital companies didn't reverse their recent downtown in admissions in the first quarter of this year. HCA Holdings (NYSE:HCA), for example, saw an overall 0.3% dip in admissions and an even greater decline of 0.6% in same hospital admissions, although HCA pre-announced news earlier this week that indicated a modest bump in admissions for the second quarter.

HCA's top executive seemed to bemoan the lack of impact from the health law.

"Healthcare reform had minimal impact on the company's first quarter results, however, we remain optimistic regarding the potential long-term benefits," HCA president and chief executive R. Milton Johnson said about the company's first quarter results.

But a series of recent reports seem to give hospital executives like Johnson reason to see a positive outlook, which should appear when these companies reveal second-quarter earnings later this month and into August.

The coming enrollment boost should benefit HCA and other investor-owned hospital companies like Community Heath Systems, Tenet Healthcare Corp. (NYSE:THC), LifePoint Hospitals and Universal Health Services.

As Americans become familiar with their new health insurance, analysts believe they will begin to use the system -- and perhaps the slight uptick in admissions HCA saw in the second quarter is reflective of this trend starting to make itself felt.

A report last week from the Robert Wood Johnson Foundation and the Urban Institute indicated the number of uninsured adults continues to drop under the health law with 8 million additional Americans gaining coverage "as a result of provisions in the Affordable Care Act."

The benefits to hospitals might not be a major uptick right away and many industry observers see it more as a long-term play.

Fitch Ratings, for example, reported first quarter same-hospital admissions for the for-profit group of hospital companies to be down 3.6 percent while adjust admissions were down 1.4 percent.

In a report last week, Fitch said the ACA did "little" to boost volumes from either patients who had new private coverage from the exchanges or those from the expanded Medicaid health insurance program for the poor.

But momentum was building as more Americans signed up later in the first quarter. The bulk of Americans who purchased private coverage did so in the waning weeks of the ACA's open enrollment period, which ran through April, according to the U.S. Department of Health and Human Services.

The financial ratings agency said the trend "needs time to develop."

It may even take some political changes for for-profit hospitals to truly benefit, particularly in states like Florida and Texas that have opposed the Medicaid expansion.

Those states, in particular, have large numbers of for-profit hospitals. HCA, for example, has nearly 40 of its 165 hospitals in Florida while Tenet and HCA each have dozens of hospitals in Texas.

"We find that the states that implemented the ACA's Medicaid expansion continue to see larger declines in the uninsurance rates for adults than did the nonexpansion states," the Robert Wood Johnson Foundation and the Urban Institute said in their July 10 report.

In a report Friday July 11, the U.S. Department of Health and Human Services said growth in Medicaid enrollment was "more pronounced" in the 26 states including the District of Columbia that adopted and implemented the Medicaid expansion under the health law.

"Enrollment in those states rose by 17 percent, while states that have not expanded reported only a 3 percent increase," HHS said in an enrollment update for the Medicaid program. 

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