PREVIEW-US hospitals stay tight-fisted to offset bad debt

* Spending spigot seen opening slowly

* Bad debt expenses will keep creeping upward

* Admissions, number of uninsured patients seen steady

* Delay of health reform could hasten M&A activity

By Susan Kelly

CHICAGO, Feb 16 (Reuters) - U.S. hospitals are keeping a
tight rein on spending even as a nascent U.S. economic recovery
struggles to take root, analysts said as they await the
sector's fourth-quarter results due later this week.

Despite signs that sales of medical equipment to hospitals
are picking up, hospital operators are expected to continue to
clamp down on expenses, most notably on labor costs.

"You'll continue to see the industry holding the line on
spending. The unemployment rate is helping to keep labor cost
inflation pretty restrained," said Avondale Partners analyst
Kemp Dolliver.

Capital spending plans are more generous than they were a
year ago, but "the spigots are opening gradually," he said.

The earnings reporting season for hospital management
companies will kick off Wednesday when Community Health Systems
(CYH.N) posts fourth-quarter results after the market closes.

Analysts generally expect hospital companies to meet or
slightly exceed fourth-quarter profit consensus expectations.
The biggest publicly traded companies include Health Management
Associates (HMA.N), LifePoint Hospitals Inc (LPNT.O), Tenet
Healthcare Corp (THC.N) and Universal Health Services (UHS.N).

HMA and privately held HCA Inc [HCA.UL] have already
previewed their results, pointing to solid trends for the
industry, analysts said.

They generally see in-patient admissions and uninsured
patient volumes running steady with the third quarter.

The number of patients with commercial insurance coverage
is expected to continue to decline, albeit modestly.

"As long as employment is soft, you'll not see that
reverse," Dolliver said.

Cost containment remains key to offsetting the ongoing rise
in bad debt expense, a trend that began in 2003 and will
continue as long as the number of uninsured patients seeking
treatment is still rising, analysts said.

"Bad debt will continue to creep up," Dolliver said.
However, he sees no big upward spike because more people are
receiving Cobra subsidies or qualifying for Medicaid, and the
industry is managing its emergency rooms more carefully.

Medical technology companies offered some anecdotal
evidence of modestly improving hospital capital spending as
they reported fourth-quarter results in recent weeks.

David Schlotterbeck, chief executive of intravenous drug
pump maker CareFusion (CFN.N), said order rates were strong for
its critical care technologies, and in its infusion business
are running at 65 to 70 percent of levels in first-half 2008,
before the credit crunch.

"We're seeing a gradual thaw in hospital spending,"
Schlotterbeck told analysts on a conference call.

Morningstar analyst Alex Morozov said hospitals slashed
budgets last year when they were hit with a credit crunch,
stalled economy and soaring unemployment.

"Spending was trimmed to an unsustainable level. Hospitals
have no choice but to update aging equipment and replenish some
of those supplies that they depleted last year," he said.

"We're going to see a little bit of an uptick in spending
patterns."

Analysts also will be looking for clues on the timing of a
potential ramp-up in hospital spending as well as the impact of
a flu season that was less severe than expected.

Dolliver said the delay of healthcare reform could trigger
acquisition activity in the hospital sector.

"Nonprofit hospitals possibly holding out hopes of reform
giving them essentially a life preserver just can't afford to
dawdle anymore," he said.
(Reporting by Susan Kelly, editing by Matthew Lewis)