All indications based on Q2 financials show reform benefiting hospitals’ bottom lines

LifePoint Hospitals reported a 44.3% increase in income from continuing operations for the second quarter and raised its financial projections for the full year. The publicly traded chain attributed the results to volume growth, expense management, new acquisitions and a better-than-expected benefit from healthcare reform.

LifePoint raises guidance

LifePoint raised its 2014 financial guidance for net revenue to $4.3 billion to $4.4 billion and earnings per share to $2.99 to $3.19—an increase from the $4 billion to $4.1 billion in net revenue and $2.38 to $2.78 in earnings per share it had forecast at the beginning of the year.

Healthcare reform is expected to add $40 million to $50 million to EBITDA for the full year, above the chain’s previous projections, Murphy said.

“We’re excited about our experience with reform so far and we expect that as more states expand (Medicaid) coverage it will become a more meaningful part of our results,” he said.

UHS reported that adjusted acute-care admissions increased 3.6%, and the King of Prussa, Pa.-based chain saw a 7.7% increase in revenue per adjusted admission.

Its acute-care operating margin increased to 19.2% in the second quarter, up from 14.8% in the prior-year period.

In contrast, admissions at its behavioral health hospitals increased 4.4%, but the division’s operating margin was 28.6%, down slightly from 28.7% in the year-ago period.

UHS, which Thursday reported net income that was essentially flat for the quarter, did raise its financial guidance for the full year. It is now projecting earnings per share of $5 to $5.55, up 15% to 16% from the initial $4.80 to $5.10 forecast.

Investors liked what they saw. LifePoint’s shares spiked 15.2% when they opened for trading after the early morning results. UHS shares opened 7.6% higher.

Consolidation could be next for academic medical centers

The pending combination of Arizona’s only academic medical center with the state’s largest not-for-profit hospital system is an early tremor in what may turn into a major shake-up of U.S. academic medicine.

Faced with the need to cut expenses, make new capital investments and subsidize the rising cost of medical research, the University of Arizona Health Network in Tucson late last month agreed to sell its operations to Phoenix-based behemoth Banner Health. UAHN has struggled financially so far this year and is scrambling for ways to begin delivering value-based care.

“The institution basically has been undercapitalized,” said Dr. Michael Waldrum, president and CEO of UAHN.

For Banner, the 30-year deal aligns its statewide network with the reputation, prestige and exclusivity of Arizona’s only full-fledged academic medical center. Banner officials believe those attributes will be a useful complement to its long-term strategy of delivering better coordinated care.

“We see capabilities that UA has and can deliver for the direction that Banner is going—into a population health management company,” said Banner President and CEO Peter Fine.

Academic medical centers are often viewed as the crown jewels of American healthcare. Their advanced and transformational research, high-profile medical faculty and mesmerizing inpatient and ambulatory facilities all contribute to that perception.

But they are also high-cost, overly focused on tertiary care and suffering through cuts in government funding for graduate medical education and research, which come on top of declining reimbursement from Medicare and Medicaid that is hitting all hospitals. With healthcare reform dramatically shifting how hospitals operate, many industry experts believe the academic titans could become dinosaurs if they don’t quickly adapt to today’s economic realities.

Academic medical centers “risk becoming high-priced, anachronistic institutions in a landscape of highly organized health systems,” an advisory panel to the Association of American Medical Colleges reported earlier this year. The AAMC convened the panel to develop strategies to help AMCs become more sustainable.

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