Worries that a Supreme Court ruling on Obamacare subsidies could lead to future increases in write-offs for caring for the uninsured weighed down shares in hospital operators last quarter, but it didn't hold back hospital operators financials.
Major hospital operators Community Health Systems (NYSE:CYH), Tenet Healthcare (NYSE:THC), and Universal Health Services (NYSE:UHS) all delivered market-beating results in the second quarter and offered up guidance suggesting that tailwinds will continue now that the Supreme Court has decided to leave Obamacare subsidies unchanged.
By the numbers
Community Health Systems' total patient admissions fell 2.2% year-over-year at hospitals in operation for more than one year, yet sales at those same hospitals grew 2.2% and total net operating revenue totaled $4.88 billion, up 2.5% year-over-year. A tight lid on expenses and fewer write-offs helped the company drop more of that revenue growth to the bottom line too. In the quarter, net income per share improved to $0.95 from $0.37 last year.
Over at Tenet Healthcare, same store admissions grew 1.7% and hospital patient revenue grew 6.9% leading to 11.2% growth in total net operating revenue. Similar profit tailwinds supporting Community Health Systems results also allowed Tenet Healthcare to generate adjusted earnings per share of $0.75, up from $0.17 the year before.
At Universal Health Services' hospitals, total same store admissions grew by 5.7%, resulting in net same-facility revenue growth of 8.4% year-over-year. Overall, total net revenue grew 10.9% to $2.28 billion in the quarter and a 1.1% improvement in operating margin at facilities in operation for more than one year led to net income per share of $1.80, up from $1.51 a year ago.
Behind the numbers
All three hospital operators credited at least some of their solid second quarter to benefits tied to Obamacare, but perhaps Tenet Healthcare was the most forth-coming in reporting just how great of an impact the Affordable Care Act, or ACA, had on it.
Tenet Healthcare operates hospitals in six states that adopted the Medicaid expansion provision of the ACA and same-hospital uninsured admissions at those hospitals plummeted 31.5% year-over-year last quarter.
But it wasn't just Medicaid expansion states that helped drive Tenet Healthcare's results higher. The company reports that uninsured admissions fell by 4.9% year-over-year at all of its hospitals that it has owned more than a year, including hospitals in non-expansion states.
Overall, Tenet Healthcare's charity care write-offs fell to $199 million in the second quarter from $240 million a year ago and its uncompensated care expense fell to $551 million from $560 million year-over-year. As a result, the percentage of adjusted revenue that the company had to set aside for uncompensated care expense declined to 10.9% from 12.2% last year.
The benefits from an increasingly insured population are likely to continue supporting results at all three operators, especially now that the Supreme Court has ended worries over an ending of ACA insurance subsidies for millions of people.
At Community Health Systems, management expects total revenue will be between $19.6 billion and $20.3 billion and income from operations will be at least $3.65 per share in 2015, up from prior estimates of at least $3.40 per share.
Tenet Healthcare believes it will deliver net operating revenue of $18.1 billion to $18.5 billion and adjusted EPS of between $1.32 and $2.21 this year, up from previous expectations for between $17.4 billion and $17.7 billion.
And Universal Health Systems upped its guidance for adjusted net income to $6.75 to $7.15 per diluted share, up 9% to 10% from the previously provided range of $6.15 to $6.55 per diluted share.
Those forecasts support owning hospital stocks throughout the remainder of this year, but ongoing tailwinds could make hospital stocks savvy buys for long haul portfolios too. Although the ACA has made a significant dent in the number of people who are uninsured, 11.9% of Americans still lack health insurance exiting the first quarter and that means that there's plenty of opportunity for hospital operators to further reduce their bad debt expense.