Fitch: Strong Results Expected for Hospital Industry in 1Q15

NEW YORK--()--Continued strength in organic growth in volumes of patients experienced by the acute care hospital industry is likely to help maintain strong for-profit hospital earnings, according to Fitch Ratings. 1Q15 results are expected early next month.

We believe strong operating trends witnessed in the second half of 2014 are likely to carry over to the early part of 2015. Improving economic conditions in many markets and a ramp up of the positive influence of the Affordable Care Act will be persistent tailwinds to growth early in the year.

The Fitch-rated group of companies reported growth in same-hospital patient admissions of 2.5% and in 4.6% growth in admissions adjusted for outpatient activity in 4Q14. Our operating forecast for the industry incorporates a similar organic growth rate in 1Q15.

However, we believe it is likely that first quarter results will be the strongest of the year as positive effects of some of the tailwinds to growth taper off later in the year.

Organic growth in volumes of patients is important for the industry since the cost structure of an acute care hospital results in a great deal of operating leverage. Because of this, strong volume growth has an outsized effect on operating margins and ultimately, cash generation. A return to weaker trends in volume growth is a threat to profitability and the recently above trend growth in inpatient admissions, in particular, is not likely to be sustainable because of certain secular changes taking place in the healthcare sector.

Recent efforts by hospital industry management teams to grow share of outpatient volumes will support overall organic growth and lend support to operating margins later in the year. However, some strategies employed to grow outpatient share have added risk to credit profiles. Tenet Healthcare Corp.'s (Tenet) announcement that it plans to acquire 50.1% of the business of United Surgical Partners International (USPI) is 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. Still, financing the transaction will also add a good deal of debt to Tenet's capital structure.

The full report, "Hospitals' Credit Diagnosis: Operating Performance Strength to Persist in Early 2015," is available at www.fitchratings.com. The report provides a summary of the quarterly operating performance and credit metrics of companies in the for-profit hospital sector, including detailed debt and organizational structure charts.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research: Hospitals' Credit Diagnosis (Operating Performance Strength to Persist in Early 2015)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864547

2014 Outlook: U.S. Healthcare - Secular Challenges Require a Compelling Value Proposition

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724141

U.S. Leveraged Finance Spotlight Series - HCA Holdings, Inc.

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721356

The Affordable Care Act and Healthcare Providers (Assessing the Potential Impact)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=706654

High-Yield Healthcare Checkup: Comprehensive Analysis of High-Yield U.S. Healthcare Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=700377

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Margin Preservation Strategies - Different Angles (Credit Implications for U.S. Hospitals and Health Insurers)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718975

High-Yield Healthcare Checkup: Comprehensive Analysis of High-Yield U.S. Healthcare Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=736356

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Megan Neuburger, CFA
Managing Director
+1 212-908-0501
Fitch, Inc.
33 Whitehall Street
New York, NY 10004
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212-908-9123
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Megan Neuburger, CFA
Managing Director
+1 212-908-0501
Fitch, Inc.
33 Whitehall Street
New York, NY 10004
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212-908-9123
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com