Hospitals Hit in Rising National Unemployment

Armen Hareyan's picture
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As the national unemployment rate hit 6.1%, the highest level since 2003, an analysis of regional rates by Longbow Research healthcare analyst David Bachman shows markets served by three major hospital companies to be much higher, leading to concerns about increasing bad debt.

For instance he found that the unemployment rate of regions served by LifePoint, Hospitals, Health Management Associates and Universal Health Services were 6.9%, 6.6% and 6.6% respectively.

He said that, "The average portfolio unemployment rate for hospital operators was 6.2% in July, up 110 bps from 4.9% in June 2007.”

Mr. Bachman added. “Rising unemployment across all operators is likely to put downward pressure on volumes as patients put off medical care as the ‘pain in their pocketbook’ increases. The high rate of year-over-year change in unemployment at THC and HMA may signal rising bad debt later this year as well as a deferral in elective procedures. Rising unemployment across all operators is likely to put downward pressure on volumes as patients put off medical care as the ‘pain in their pocketbook’ increases.

Tracking Local Unemployment for Clues on Bad Debt & Volume Trends

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To monitor unemployment trends, we track county level data for each hospital company and calculate a “portfolio unemployment rate” using a weighted average based on licensed beds in each county. While the unemployment rate admittedly does not tell the entire bad debt expense and charity care story, it is a useful proxy for tracking the local economic conditions at the hospital level. Changes in the local economy are also likely to impact elective procedure volumes and recruitment.

Key takeaways from July 2008 County level data:

Average unemployment rate up 120 bps - The average portfolio unemployment rate for hospital operators was 6.2% in July, up 110 bps from 4.9% in June 2007.

Highest unemployment at LPNT, HMA & UHS - In July, the same three operators had the highest portfolio unemployment rates as in June: Health Management, Universal Health Services, and LifePoint Hospitals, at 6.9%, 6.6%, and 6.6%, respectively. Tenet was at 6.5% and Community Health Systems was at 6.1%. MedCath was again the lowest at 4.9%. The U.S. average (not seasonally adjusted) was 6.0%, with MedCath below the average and the other operators above.

Tenet still seeing rapid change - For the eighth straight month, Tenet experienced the greatest year-over-year change (31.2%), followed by Health Management (25.9%), and Universal Health (22.7%). The lowest year-over-year change was at MedCath (-0.4%), LifePoint (21.6%), and Community Health Systems (22.0%).

Cause for concern? The high rate of year-over-year change in unemployment at THC and HMA may signal rising bad debt later this year as well as a deferral in elective procedures. Rising unemployment across all operators is likely to put downward pressure on volumes as patients put off medical care as the "pain in their pocketbook" increases.

We remain neutral on the acute care hospital sector on concerns about a weakening economy, bad debt/charity care, and uncertainty about both pricing and volume through the remainder of 2008 and in 2009. We expect industry headwinds to pick back up as 2008 progresses.

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