Sector Snap: Hospital operators face slower admission growth

Shares of hospital operators mostly rose Tuesday, even though a Citi Investment Research analyst warned hospital admissions growth rates could slow this year.

Slower job growth could hurt hospital admission rates, analyst Gary Taylor wrote Tuesday.

Taylor added he is forecasting 2008 admissions growth of between 0 and 1 percent.

In a note issued earlier this month on MedCath Corp., Taylor warned that the economic environment could also impact hospitals' collection rates.

"Rising unemployment and deteriorating consumer credit are likely to drive collection rates still lower and bad debt expense higher," he said. "The industry does not have a good track record of staying in front of declining collection rates."

According to proprietary data, Taylor said that inpatient admissions increased 2.4 percent in April compared with the prior-year period, while first-quarter admissions were up 1.2 percent.

While the April figures seem impressive, "we actually suggest the growth is disappointing given an estimated +3.6 percent seasonality tailwind during the month," Taylor wrote.

While Taylor said that the hospital operator stocks could see an upswing on the April data, "we would sell the stocks before normalized May and June data points and before further evidence of weaker collection rates become evident in higher bad debt expense."

In midday trading, shares of Community Health System rose 7 cents to $37.07, while Lifepoint Hospital Inc. gained 25 cents to $33.19. Tenet Healthcare Corp. shares were up 7 cents to $5.75, and Health Management shares rose 12 cents to $7.61.

Bucking the trend was MedCath Corp, whose shares declined 28 cents to $19.50.