Why investors are picking providers over payers in 2024

Providers are a better investment than payers for the first time in a decade, TD Cowen analyst Gary Taylor said. 

At a Nashville Health Care Council event on Wall Street's view on healthcare, Mr. Taylor said 2023 and 2024 are the first years in the past decade his firm has recommended providers over payers. 

"The operating environment is great for providers right now. The labor cost curve is fading meaningfully, and visibility around the business is getting better," Mr. Taylor said, according to a Feb. 9 press release from the Nashville Health Care Council. 

For-profit hospitals are likely to get a larger market share in the coming years, picking up technology and facilities from nonprofit hospitals that emerged from the pandemic in worse financial shape than their for-profit peers, Mr. Taylor predicted. 

Dallas-based Tenet Healthcare reported a 30% gain in net income in 2023 over 2022.  Nashville, Tenn.-based HCA, which operates 186 hospitals, reported a slight decrease of 7%, posting $5.2 billion in profit in 2023. 

Payers are facing headwinds in Medicare Advantage, where medical utilization is rising and CMS is cutting back on benchmark payments to payers. 

At the Nashville Health Care Council, Mr. Taylor said costs are increasing in Medicare Advantage for the first time in nearly two decades, and he predicted many MA plans will struggle financially. 

Though payers are reporting increased utilization in the Medicare Advantage population, the trend is less clear from providers' vantage point. 

HCA Healthcare reported an increased volume of Medicare patients in its fourth-quarter earnings report, but in a call with investors, CEO Sam Hazen said it's difficult to parse the exact cause of increased Medicare revenue. More baby boomers are aging into the program, and HCA operates in areas with growing populations overall, executives said. 

"So it's hard for us to judge underneath that, whether or not there's some structural change in utilization," Mr. Hazen said on the call. "That's almost impossible for us to discern with the data that we have." 

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