Flu Season Boosts Revenues at For-Profit Health Care Providers

Despite a weaker economy, for-profit hospitals enjoyed a strong first quarter thanks to higher volume, favorable pricing and lower bad debt expense, according to a report by Fitch Ratings Co.

In the report, Fitch’s “For-Profit Hospital Quarterly Diagnosis”, the ratings company said the sector’s volume improved primarily because of a tough flu season. Pricing and revenue growth also were strong although Community Health Systems and Heath Management Associates introduced uninsured discount policies in the last year that reduced reported pricing growth. But Fitch credited low unemployment rates with helping to keep bad debt expense in check.

“Several providers had notable first quarters, including Tenet Healthcare Corp., which reported its second consecutive quarter of positive admissions growth for the first time in more than four years,” Fitch said, adding that Community Health Systems, “appears to be ahead of schedule in realizing the synergies from its 2007 acquisition of Triad Hospitals.”

Fitch said the for-profit hospitals’ admissions increased an average of 16.2 percent in the first quarter, compared with a 3.1 percent increase in the first quarter of 2007.  Admissions at hospitals open at least a year grew an average of 1.2 percent compared with an average increase of .51 percent during the year ago period. The sector’s revenue was $2.6 billion compared with $2.1 billion during the year ago period.

Although volumes were strong, Fitch said treating flu patients is not always the most profitable line of service and it noted that surgeries were down across virtually all providers. “The industry is still vulnerable to competition and the movement of services out of the inpatient setting,” Fitch said in the report.

“Overall, it appears the industry continues to be able to obtain mid- to high-single-digit price increases from managed care, which should continue to benefit providers throughout 2008.” Fitch said some providers also are benefiting from coding initiatives to capture increased reimbursement from Medicare’s new severity-adjusted diagnosis related group system.