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HCA cuts forecast citing lower hospital admissions, sending hospital stocks lower

A registered nurse hangs an I.V. bag for a patient at the University of Miami Hospital's Emergency Department.
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A registered nurse hangs an I.V. bag for a patient at the University of Miami Hospital's Emergency Department.

HCA Holdings warned its first-quarter results would come up short of analyst expectations, due in part to a drop-off in hospital admissions. The news weighed on stocks in the hospital sector Monday, overshadowing some positive regulatory changes from the Trump administration.

HCA pre-announced first-quarter revenues of $10.6 billion, which is one percent below the $10.78 billion top-line consensus estimate of analysts surveyed by Thomson Reuters. The hospital operator, which specializes in trauma and surgical centers, said emergency room admissions rose 1.1 percent in the latest quarter, down from the 1.6 percent gain in the same quarter a year ago, and below analysts' expectations.

HCA blamed part of the shortfall to the year-over-year comparison, noting in its press release that 2016 was a leap year.

"Results for the first quarter of 2017 were affected by changes in payer mix and the loss of one day when compared to the first quarter of 2016," the company announced.

"More concerning is deterioration in payer mix," wrote analyst Michael Newshel of Evercore ISI in a research note to clients, noting a continued drop in HCA's higher-margin commercial insurance patient admissions.

The hospital operator said the percentage of commercial patient admissions dropped by nearly one full percentage point, while Medicare admissions now make up nearly half of its patient volumes.

"This marks the fourth quarter in a row of weak managed care volumes," Newshel said.

The news confirms signs that hospitals are facing increasing competition from less costly alternatives. Insurers are increasingly encouraging patients to seek less invasive procedures at lower-priced outpatient surgical centers, while consumers are more apt to seek out urgent care centers rather than the emergency room for non-critical ailments.

HCA's warning sent its stock down as much a 3 percent, and weighed even more heavily on shares of its rivals, Community Health and Tenet Healthcare.

The news overshadowed bullish Medicare reimbursement changes issued by the Trump administration over the weekend.

The Centers for Medicare and Medicaid is proposing boosting Medicare inpatient hospital reimbursement by $3 billion for fiscal year 2018, or an effective 1.7 percent rate increase. In addition, CMS is adding $1 billion to payments for uncompensated care.

The administration also issued a request for feedback on how to make regulation of the health industry "less bureaucratic and complex," which analysts say signals a more open approach.

"We believe this is a positive move and expect the hospital industry to actively be lobbying for improvements," wrote Leerink analyst Ana Gupte in a research note.