Fitch: Strong for-profit hospital earnings expected in Q1 of 2015

Ongoing strength in organic growth in volumes of patients experienced by the acute care hospital industry will likely help maintain strong for-profit hospital earnings in the first quarter of 2015, according to Fitch Ratings.

"Improving economic conditions in many markets and a ramp up of the positive influence of the (Patient Protection and) Affordable Care Act will be persistent tailwinds to growth early in the year," Fitch predicted.

The Fitch-rated group of companies reported 4.6 percent growth in admissions adjusted for outpatient activity in the fourth quarter of 2014, according to Fitch. And the ratings agency said its industry forecast projects incorporates a similar organic growth rate in the first quarter of this year. 

However, Fitch said, it believes results for the first quarter of 2015 will likely be the strongest of the year "as positive effects of some of the tailwinds to growth taper off later in the year."

In addition, Fitch expects that recent efforts by hospital industry management teams to grow their share of outpatient volumes will support overall organic growth and lend support to operating margins later in 2015. But Fitch noted that some strategies employed to grow outpatient share have added risk to credit profiles. Fitch cites Dallas-based Tenet Healthcare's plans to acquire 50.1 percent of the business of United Surgical Partners International as a recent example.

"The acquisition of ambulatory surgery centers makes good strategic sense since it will expand Tenet's footprint of outpatient facilities and USPI's unique three-way financial partnership structure will enhance Tenet's economic alignment with physicians and local hospital systems," Fitch said. "Still, financing the transaction will also add a good deal of debt to Tenet's capital structure." 

The full report from Fitch, "Hospitals' Credit Diagnosis: Operating Performance Strength to Persist in Early 2015," is available here.

 

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