Fitch less sanguine about for-profit hospitals

Raises concerns about drop in pre-tax margins
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For-profit hospitals had a respectable third quarter of 2015, but a new report by Fitch Ratings suggests that more difficult times may be ahead for the sector.

Same hospital adjusted admissions were up 2 percent during the quarter, although they were flat at rural facilities, according to the Fitch report. Net same facility revenue growth was about 4.4 percent. However, there was weakness among those admitted with lower acuity. The ratings agency suggested that as the Affordable Care Act (ACA) matures, hospitals will have less of an influx of insured patients in their doors than in recent years.

Fitch was particularly concerned about pre-tax margins among for-profit hospitals. They increased just 0.16 percent in the quarter compared to the third quarter of 2014, and some systems reported drops. "Higher labor and supplies expenses and relatively weaker growth in pricing played a role in these results," Fitch said in an announcement.

Fitch's skepticism for 2016 was echoed in its not-for-profit sector report released late last year, where it was concerned about a greater shift in risk to providers. However, it did note in another 2015 report that it expected hospitals to increase their capital spending in the years to come. But just a year ago, it had predicted a rosier future for the for-profit sector.

The ratings agency said that ACA growing pains could put a crimp on the sector in the quarters to come.

"After surviving myriad political and legal battles, the ACA now faces a long period of logistical difficulties in implementation. Some companies reported that a higher level of uncompensated care was a headwind to margins in the quarter," the report said. "The short operating history of the ACA makes it difficult to tell how much of the mix shift is related to a tapering of its benefits, but UnitedHealth Group's decision to pull back from the individual exchange business is one indication that future growth in exchange volumes may be tepid."

To learn more:
- read the Fitch statement 
- check out the Fitch report (registration/payment required)

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