What happened
Shares of Kindred Healthcare (KND), a provider of healthcare services via hospitals, home health, and rehabilitation units, surged as much as 16% during Thursday's trading session after the company provided an update on its adverse earnings impact from hurricanes Irma and Harvey. As you can probably surmise from the move higher, Wall Street was pleased with the small magnitude of impact on the company's bottom-line results.
So what
According to a press release from Kindred after the closing bell on Wednesday, the company announced the expectation of a one-time pre-tax earnings impact of $20 million during the third quarter. Kindred CEO Benjamin Breier commented in the press release that approximately 16% of the company's consolidated revenue was initially at risk because of these two storms. Kindred has already begun pursuing claims under its business-interruption insurance coverage, which may help cover losses incurred from Irma and Harvey.
Image source: Getty Images.
More importantly, the company's operations have mostly returned to normal. Breier notes that all of the company's Houston hospitals remained open during and after Harvey, and that only two of the company's 10 hospitals in Florida were evacuated before Irma hit. None of the company-run facilities sustained any damage, meaning the impact from these storms will be exceptionally short-term.
Now what
Considering how devastating these storms could have been for Kindred and its numerous facilities, this was actually a very good outcome. Investors in Kindred can safely put hurricane concerns in the rearview mirror and once again turn their attention to what will happen with regard to healthcare reform.
Under the Affordable Care Act, which is better known as Obamacare, hospitals have predominantly flourished. More Americans are insured, which has reduced the percentage of bad-debt accounts from patients who received service but don't or can't pay their bill. The individual mandate, which requires that consumers purchase insurance, along with federal subsidies for low-income folks, has also helped healthcare service providers like Kindred.
However, Republicans in Congress appear to be just a few votes short of potentially repealing and replacing Obamacare, which could cause disruption for healthcare service providers. Presumably, an uptick in the uninsured rate would increase the percentage of bad debt on their books and hurt full-year profits. We could also see a sizable cut in Medicaid spending, which would adversely impact hospitals and healthcare service providers.
In other words, Kindred shareholders should keep their eyes peeled on discussions involving Obamacare now that the short-term hurricane concerns are out of view.
