Hospital shares slide after Community follows HCA in predicting 3rd-quarter earnings miss

Hospital stocks tanked Thursday after another big chain warned Wall Street that it won’t meet third-quarter earnings expectations.

Community Health Systems said Wednesday after markets closed that patient admissions fell about 2 per cent at its established locations in the quarter, and it saw a decrease in the percentage of people covered by commercial insurance, which offers the best reimbursement. The Franklin, Tennessee, chain expects adjusted earnings for the quarter that ends Sept. 30 to be 56 cents per share.

That falls well below the average of 72 cents per share expected on Wall Street, according to FactSet.

Community’s earnings preview came a week after HCA Holdings Inc. also said it would miss expectations for the quarter and that it was hit by higher labour costs and a greater percentage of uninsured patients.

Analysts say they don’t see a lot of common themes in the previews so far, and they aren’t sure whether disappointing patient totals will stick around at these hospitals.

Goldman Sachs analyst Matthew Borsch said in a research note that hospitals have seen several quarters of patient growth as the Affordable Care Act expanded patient coverage to the uninsured, and this may be a “big chill” on that.

The timing of Labor Day also may have hurt hospitals in the third quarter, BMO Capital Markets analyst Jen Lynch said. Labor Day fell later this year, and patients general avoid scheduling inpatient procedures before the holiday weekend and then immediately after it. That could have led to slower-than-expected business in the quarter’s final month.

Hospitals generally do more business in the year’s final quarter. Many patients by then have met their insurance deductibles, or the amounts they have to pay out of pocket before most coverage starts. They then try to schedule treatments like elective surgeries in the final months of the year before the deductible renew in January. Lynch expects business to improve in the fourth quarter.

“It just becomes a question of whether or not it meets expectations,” she said.

Community Health Systems Inc., which is based in Franklin, Tennessee, runs 198 hospitals in 29 states. It will announce full results from the quarter on Nov. 2.

Nashville, Tennessee-based HCA Holdings Inc. runs about 165 hospitals and 115 free-standing surgery centres in 20 states and England. It will discuss its third quarter on Oct. 27.

Shares of Community Health fell 30 per cent, or $12.14, to $28.41 in morning trading, while broader indexes rose 1 per cent. HCA dropped nearly 5 per cent, or $3.48, to $67.72. Other hospital stocks fell as well.

Tenet Healthcare Corp. was down nearly 14 per cent, or $4.81, to $30, and LifePoint Health Inc. fell 10.4 per cent, or $7.53, to $64.58.