CHICAGO U.S. hospitals are getting a stronger-than-expected benefit from a new influx of low-income patients whose bills are paid by the government's Medicaid program, raising their profit forecasts as a result.
The growing numbers of Medicaid patients helped hospital operator HCA Holdings Inc, the largest for-profit chain, post stronger earnings in the second quarter than initially forecast.
Notably fewer uninsured patients came through its doors, HCA said, as millions of Americans signed up for private health insurance under President Barack Obama's healthcare law. But a second, unexpectedly strong boost came from a surge in Medicaid enrollment, which is expanding under the law known as Obamacare.
"In general, Medicaid is the real driver of increases in insured populations," said Snow Capital Management analyst Jessica Bemer.
The administration says 6.7 million people have signed up for Medicaid and other healthcare programs for the poor since Obamacare enrollment began last October.
For HCA, the Medicaid boost was greatest in states that chose to expand eligibility for coverage, with federal support, under the Affordable Care Act. HCA said its Medicaid admissions jumped 32 percent year to date in four expansion states where it has facilities, and uninsured patient volumes dropped 48 percent in that time.
Yet even in states such as Texas that oppose Obamacare and opted not to expand Medicaid eligibility, HCA said it treated more patients who were enrolled in the program.
"It is interesting to note that uninsured volume from non-expansion states has also declined," HCA Chief Financial Officer William Rutherford said on the company's earnings call.
Smaller hospital operator Universal Health Services also singled out growth at its Texas hospitals, saying it had not anticipated a big impact from health reform in the state.
"The pleasant surprise of 2014 has really been the performance of our Texas markets," Universal Chief Financial Officer Steve Filton said. He said the improving economy in the state likely played a role.
Some analysts believe non-expansion states are seeing Medicaid enrollment rise because people who were eligible all along but had never signed up became aware of their options with the recent media attention to Obamacare.
"These people are coming out of the woodwork," Bemer said.
An analysis by consultancy Avalere Health found that 17 of the 26 U.S. states that did not expand Medicaid in the first three months of the year still reported growth in enrollment, some by as much as 10 percent.
The impact of higher Medicaid enrollment accelerated in the second quarter, HCA said. Medicaid admissions were up 7.8 percent compared with a year ago, after rising 1.4 percent in the first quarter. Self-pay and charity admissions fell 14.7 percent in the second quarter from a year ago.
Hospitals for years have struggled with rising bad-debt expenses as the uninsured sought treatment in emergency rooms where they could not be denied care for lack of ability to pay.
"Reform is helping the hospitals cover bad debts," said UBS analyst A.J. Rice.
An improving U.S. economy is also giving hospitals a boost as more people schedule procedures after postponing seeking care during the downturn. HCA said specialties such as orthopedics, cardiovascular and neuroscience all saw solid growth in the second quarter.
A further benefit to hospitals is likely to come in the second half of the year as patients with private insurance who have met their deductibles schedule medical visits they will not have to pay for out of pocket.
Private hospitals could also see a bump in business from U.S. veterans, under a plan being hammered out in Congress, to address the needs of those unable to get prompt appointments at Veterans Affairs facilities.
Many expect the positive picture for hospitals to continue for the foreseeable future. HCA, Universal Health and LifePoint Hospitals Inc all raised their earnings forecasts for the full year.
"HCA is well positioned to benefit from a multi-year favorable backdrop being driven by health reform, an improving economy and potentially the new VA reform bill," Rice said.