Admissions Falter as Prices Remain Solid at Hospitals

Increased competition from specialty hospitals and a shift in procedures from inpatient settings to outpatient services or doctor’s offices will continue to pressure for-profit hospital admissions in the near future, according to a special report by Fitch Ratings.   

Admissions are the lifeblood of for-profits, so the declines threaten revenue and earnings, experts say. Pricing, however, has been the industry’s saving grace.  

In the third quarter of 2007, hospital admissions at hospitals open at least one year declined 0.6 percent, the second consecutive quarter of decline, according to the report.  

And although for-profit hospitals’ adjusted admissions growth for facilities open a year or more grew from 0.5 percent to 1.3 percent from the prior year period, growth was still down slightly from the second quarter of 2007.  Adjusted admissions take into account non-recurring events a hospital closing or a special charge.

“A moratorium on new specialty hospitals expired in late 2006 and we’ve seen some new hospitals cropping up,” said Lauren Coste, director of corporate finance and co-author of the report, Fitch’s For-Profit Hospital Industry Diagnosis for the Third Quarter 2007.  

Community Health Systems, Tenet Healthcare and HCA Inc. reported the largest admissions declines during the quarter. CHS, which bought Triad Hospitals in July, saw admissions fall 3 percent, in part because it discontinued certain services and had fewer self-pay admissions. Still, its adjusted admissions declined 0.6 percent, while the sector reported average growth of 1.3 percent, according to the report.   

Meanwhile, admissions at Tenet dropped 1.6 percent and 0.8 percent at HCA. The report notes that HCA continues to be affected by the 2002 loss of its partnership with Sierra Health Services, the leading commercial managed care insurer in the Las Vegas market, that entered an agreement with a Universal Health System affiliate.  HCA and Tenet also may be feeling pressure from several open-heart surgery programs opened by non-profit competitors in the Palm Beach, Fla. market in the past year, Coste said.

“This trend may continue, as a new open-heart program in this region is slated to open during the first quarter of 2008,” she said.

Pricing, however, continues to be an important source of earnings growth for the sector. During the third quarter, both net inpatient revenue per admission and net revenue per adjusted admission at hospitals open at least one year grew more than 5 percent. Coste credits much of the growth to strong managed care pricing and favorable government reimbursements. She expects managed care pricing to remain favorable through 2008, with average rate increases in the mid-to-high single digits, although cuts could occur for some government reimbursement programs beginning as early as the fourth quarter of 2007.