For-profit health systems get first-quarter boost, but will it last?
The economic recovery has been a major driver, but the increase in the number of people insured is likely having the biggest effect.
Major for-profit health systems are seeing strong first quarter on increases in the number of insured seeking care, but experts say the big gains may fade as 2015 unfolds.
Credit agency Fitch Ratings said same-hospital patient admissions rose 2.5 percent during the fourth quarter of 2014, and though systems are still in the midst of filing first-quarter reports, the agency said the first quarter of 2015 will be just as strong.
For example, Hospital Corp. of America reported a 5 percent increase in patient admissions and a 6 percent growth overall, according to Megan Neuburger, managing director for Fitch.
[Also: Fitch bullish on for-profit healthcare]
The numbers aren't surprising she said, but may not last.
"I think the strong volume numbers will start to taper later in the year," Neuburger said. "When we get to the second half of the year, we'll see less incremental benefit from the ACA."
The economic recovery has been a major driver, but the increase in the number of people insured through the Affordable Care Act and Medicaid expansion is likely having the biggest effect.
The industry has also seen growth in the number of patients covered under commercial plans, she said.
"The payer mix has improved," she said.
[Also: Fitch gives Tenet 'Negative' credit outlook]
On the nonprofit side, hospitals are experiencing increases in patient volumes which is contributing to margin improvement, according to Jeff Jones, a managing director for Huron Healthcare.
"Across the country, we're seeing improved operating performance," Jones said.
A Fitch report claims the first quarter results will be the strongest of the year before volumes and margins settle back to a new normal.
According to Jones, providers are also spending money on the transition from a fee-for-service model to one that is value-based, but there really isn't any reward for spending the funds on the infrastructure needed to get there.
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And with more emphasis on value, the more health systems expect to lean on outpatient care.
"They're losing volume out of inpatient care, where they get paid the most," Jones said. "They are lowering the cost of care, but how quickly is the system rewarding them? We've got a timing issue."
Huron tells its clients to take advantage of the additional cash coming in now and invest it in technology, analytic tools, building patient portals and electronic records, facilities or other infrastructure.
While margins are up in the first quarter, costs are increasing too, Jones said.
The strengthened economy means the cost of labor will rise. Also, pharma costs are expected to climb at two to three times the cost of inflation, Jones said.
"The question is, how do we want to best take these gains and invest them in changes that are going to make a difference in managing care over the next three to five years?" Jones said.
Fitch said politics is among the biggest risk factors. A Republican-led Congress or a potential GOP president could move to dismantle the health reform, or gut the employer mandate requiring companies with more than 50 full-time workers to offer coverage.
Organic growth in volumes of patients is important for the industry since the cost structure of an acute care hospital results in a great deal of operating leverage, according to Fitch. Because of this, strong volume growth has an outsized effect on operating margins and ultimately, cash generation, it stated.
The recent trend in inpatient admissions is not likely to be sustainable, Fitch said, yet efforts by providers to grow outpatient volume will support overall organic growth and lend support to operating margins later in the year.
Twitter: @SusanMorseHFN
