Hospitals Cash In on the Newly Insured

More Surgery, Maternity Care, ER Visits Boost Admissions—to Insurance Firms’ Chagrin.

A rush of newly insured patients using health services has boosted hospital operators’ fortunes but has racked up costs that insurers didn’t anticipate, corporate filings and interviews with executives show.

People are getting more back surgeries, seeking maternity care and showing up at emergency rooms more frequently, executives say, boosting income for hospital operators.

At Tenet Healthcare Corp., patient volumes rose 4% in the second quarter compared with a year earlier, while uninsured inpatient admissions slid 22%. The Dallas-based company’s earnings before interest, taxes, depreciation and amortization rose 37%. (The company posted a net loss for the quarter in part due to expenses related to its acquisition of rival Vanguard Health Systems last year.)

Chief Executive Trevor Fetter said volume was high in maternity care, spine treatment and other procedures among people enrolling in plans offered through new health-law marketplaces, many of whom were previously uninsured and had likely delayed care. In some states, he said, hospitals got a boost from Medicaid programs that swelled under the law.

“There are still some very glaring holes in coverage, but in those states that expanded Medicaid and had a well-functioning exchange, we’re really seeing a substantial pick up,” he said. The law drove one-third of Tenet’s volume increase, he said; the rest reflected an improving economy and its own strategic investments.

The biggest publicly traded hospital company, HCA Holdings Inc., reported a 9.2% increase in second-quarter revenue.

The winners and losers in the health law’s early rounds are beginning to emerge from companies’ financial disclosures. Providers of services are in the lead for now, with some of those who pay for health care—insurers and employers—losing some ground.

While it isn’t clear how many of those were previously uninsured, the hospitals’ boost suggests many who delayed care—likely during periods without coverage—are now seeking treatment.

In some cases, those people have gained coverage thanks to a more buoyant job market—the economy has added at least 200,000 positions each month for the past six months—in addition to getting help from the law. Hospital leaders estimate one-third to one half of their gains are due to the law itself.

Despite efforts to steer some new enrollees to less expensive places for care—for instance, urgent-care centers or community doctors’ offices—emergency room use grew, too. ER visits increased 8% at Tenet and 5.7% at HCA for the quarter.

Hospitals’ suppliers, too, have noticed early signs that patients seeking care could trickle into their business. Surgery-robot maker Intuitive Surgical Inc. said it there was a 5% uptick in procedures using its equipment in the second quarter, driven in part by the Affordable Care Act. Intuitive declined to comment.

Insurers, meanwhile, are still grappling with the health-law’s new marketplaces—and the costlier-than-expected patients some of them attracted.

Some insurers, including Cigna Corp. CI -1.02% , said they spent a bigger share of the premiums they collected in the second quarter on medical expenses than last year. The “medical loss ratio” is rising in part because enrollees under the health law—many of whom may previously have been uninsured—are seeking health services like surgeries at higher rates. MLR is a key metric of insurers’ financial success.

Cigna CEO David M. Cordani said in an interview last week that based on their current enrollment, the public exchanges are “not a sustainable model.” He said Cigna expects the enrollment to change, with more people and a healthier mix. Last week, Cigna told investors an initial wave of health-law enrollees used more oncology, orthopedic and maternity services than expected.

Employers continued to report higher health costs, due in part to changes under the law including new taxes on insurance premiums and penalties for individuals who go without coverage.

Industry executives said the health-law’s shift was still in its early innings. Hospitals’ gains could slow as the pool of newly insured people stabilizes. Insurers could find their new offerings more lucrative in coming years. And, the entire industry anticipates cuts to government payments and other changes.

“I have a feeling we’re going to go through an incredible amount of tumult for the next probably five to 10 years,” said Glenn Steele, CEO of Geisinger Health System, a nonprofit hospital-operator and health plan owner in Pennsylvania.

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