For-Profit Hospitals Should See Little Change from Florida Medicaid Cuts

Florida hospitals will face another round of Medicaid cuts next year, thanks to new legislation that takes effect in January. But the impact on large for-profit hospital groups should be minimal, according to a Lehman Brothers healthcare facilities analyst.

On October 13th Florida’s state legislature passed a bill that will reduce the state’s $71 billion annual budget for 2008 by $1.1 billion. Medicaid payments to hospitals will drop about $340 million, while nursing homes will receive $160 million less. The cuts will be implemented over the next several years. Observers said the governor is expected to sign the measure.

“We don’t believe this is a significant issue for our covered universe of hospitals, due to Medicaid accounting for a small amount of revenues,” Lehman analyst Adam Feinstein said in a report released Monday.

Florida accounts for as little 3 percent of revenues at Community Health Systems (NYSE: CYH) to as much as 32 percent at Health Management Associates (NYSE: HMA), Feinstein said. And Medicaid, on average, accounts for 8 percent to 10 percent of total revenues for the hospital sector.  

Tenet Health Corp. (NYSE: THC) and HMA are likely to be the most affected because of the number of beds they have in the state, Feinstein reports. Based on early estimates, Tenet is the most vulnerable with an estimated 21 percent of its revenue coming from Florida. THC could see revenues fall 3 percent or $3.2 million and earnings decline 3.8 percent or $0.01 per share, Feinstein said. Meanwhile, HMA, Florida’s largest hospital operator, could see annual revenues fall $2.5 million and earnings off $0.01 per share, he said.

LifePoint Hospitals (Nasdaq: LPNT) and CYH would potentially be the least affected by the cuts because of their limited operations in Florida. The impact on 2008 earnings is expected to be less than $0.01 per share for both companies, Feinstein said.

With Florida accounting for 10 percent of revenues at Universal Health Services (NYSE: UHS), Feinstein estimates the company’s revenues will be down $863,000 for the year and the earnings impact will be less than $0.01 a share.