Hospital admissions reach weakest levels in a decade

Citi analysts attribute drop to new Medicare payment rule

Hospital inpatient admissions in November dipped to their weakest level in more than 10 years, according to Citi Research's monthly survey of nearly 100 U.S. hospitals.

A research team led by Citi analyst Gary Taylor found that in October and November combined, admissions were 4% to 5% lower than they were during the same period in 2012. And in November, just 5% of respondents reported year-over-year growth in inpatient admissions, the lowest number in the 11 years that Citi has performed the survey.

In large part, Citi analysts attribute the drop to a controversial rule on Medicare inpatient admissions that requires hospitals to treat patient stays lasting less than "two midnights" as an outpatient visit. The new rule was intended to limit the use of costly observation status in hospitals.

The 'two-midnight' rule: What you need to know

"In addition, it is reasonable to conclude that the cumulative impact of changing physician employment and payment models is beginning to play a role, as well as the paralyzing effect of the impotent Obamacare rollout," Taylor wrote in the report.

Effect on the market

The new numbers will likely impact hospital operators' fourth-quarter earnings and 2014 forecasts, Taylor warned. And shares of for-profit hospital operators—which have steadily increased throughout 2013 in anticipation of newly insured patient volumes under the Affordable Care Act's coverage expansion—plunged on Tuesday.

According to Reuters, the stock prices for:

  • HCA Holdings fell 2.9% to $45.81;
  • Community Health Systems declined 2.9% to $38.11; and
  • Tenet Healthcare dropped 1.9% to $39.80.

The Citi report follows several recent pessimistic reports about the hospital sector. Major ratings agencies like Moody's and S&P have either reiterated their negative outlook for next year or downgraded their expectations.

Fitch: Drop in hospital admissions caused by 'systemic shift'

Specifically, the agencies have raised concerns about the uncertainty of the Affordable Care Act's effects on the industry, coupled with existing trends like the migration of inpatient volumes to outpatient settings (Kelly, Reuters, 12/17; Lombaerde, Nashville Post, 12/17; Mullaney, McKnights Long-Term Care News, 12/19).

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