UHS Universal Health Services

   By Anne Steele 
 

Hospital shares fell Thursday after HCA Holdings Inc.'s warning added to investor concerns about waning benefits from the country's health-care reform.

Hospitals have benefited in recent years from an increase in the number of insured patients under the Affordable Care Act. However, in recent months, investors have grown concerned that the benefits may be moderating.

HCA on Wednesday bolstered those worries by saying its per-share earnings for the September quarter would fall 4% below analyst expectations. The company blamed the shortfall, in part, on a less favorable payer mix, saying same-facilty uninsured admissions rose while more profitable managed-care admissions fell.

In addition, the company noted an increase in labor costs, which it attributed to "less productivity" and a rise in contract labor.

Because HCA is the largest publicly traded hospital operator its comments about business trends tend to affect the whole sector.

"When HCA sneezes, the industry gets the flu," Mizuho Securities USA analyst Sheryl Skolnick said Thursday. "The assumption is that all of the hospitals will have something wrong with them."

HCA shares, which fell as much as 10% Thursday, recently slid 5.7% to $71.67 in afternoon trading.

Meanwhile, shares of other hospital operators also had bounced off their lows for the day. Universal Health Services Inc. recently dropped 1.7%, while stocks of Community Health Systems Inc., Tenet Healthcare Corp. and LifePoint Health Inc. each fell more than 2.5%. Those stocks were each down more than 7% at one point Thursday.

Ms. Skolnick said HCA's outlook raised questions about why the hospital provider--widely regarded for its management--allowed contract labor and costs to be "so out of whack."

She also questioned why HCA is seeing more uninsured patients, as the country's health-care reform has been in place for two years. The analyst doesn't expect to see that trend across the industry.

Jefferies analyst Brian Tanquilut agreed that HCA's higher uninsured admissions may be company-specific, and he noted that overall volume trends were encouraging.

Mr. Tanquilut acknowledged that the upside from the Affordable Care Act will likely be modest for hospitals over the next 12 months, but he noted that the stocks are now trading below historical valuations.

Ms. Skolnick also said the selloff Thursday was an overreaction but doesn't see investor opinions changing in the near term.

"Even when we get clarity with earnings reports it won't matter because the sentiment with the group is so negative right now," she said.

Write to Anne Steele at anne.steele@wsj.com

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(END) Dow Jones Newswires

October 15, 2015 14:33 ET (18:33 GMT)

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