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Stock Strategist Industry Reports

Like Their Patients, Hospitals Are Ill

After a tough 2008, hospitals are set to face more pain in 2009.

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Long considered recession-resistant, hospital operators are suffering in the most recent downturn. In 2008, hospitals faced revenue and profitability pressures, and we expect head winds will continue through 2009. In this industry update, we will outline the laundry list of challenges facing hospitals, a couple of bright spots, and some of our expectations for 2009.

Patients Delaying Care
The U.S. consumer is hurting. Cash-strapped individuals are delaying purchases and re-evaluating potential expenditures for just about everything, including nonemergency medical procedures. In our opinion, some commercially insured patients faced with high co-pays and deductibles are delaying treatment for non-life-threatening conditions, cutting into admissions growth rates at hospitals. In 2008,  LifePoint Hospitals (LPNT), an operator of mostly rural facilities, saw adjusted admissions (which measures the combined impact of inpatient and outpatient visits) decline about 1%. Another operator,  Health Management Associates (HMA), experienced adjusted admissions declines in two of the four quarters in 2008, with relatively flat figures for the year. Despite the challenging environment, some operators managed to drive positive same-hospital admission growth in 2008, including  Community Health Systems (CYH). We expect it will be difficult for hospitals to gain admission traction in 2009 without improvements in consumer spending, and in our opinion, negative admissions growth is a very real possibility for many hospital operators this year.

Jeffrey Stafford does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.