Hospitals have expressed widespread skepticism about Obamacare’s impact, but a survey of 2014 expectations shows that projected capital expenditures don’t seem to match the gloomy predictions.
“Only 60% of respondents in Medicaid-expansion states believe the combination of subsidized Obamacare exchange plans and Medicaid will reduce their uninsured patient volumes in 2014,” writes Citi analyst Gary Taylor, but “the stronger yty capex forecast seems to express more optimism than the specific Obamacare questions elicited.”
Obamacare rollout debacle
Taylor explains that the survey was taken in October/November last year in the midst of the Obamacare rollout debacle, which continues to haunt the administration despite some encouraging signs in December. Questions about Obamacare’s impact were probably influenced by the passing mood, while capex numbers may have more substance. (The survey also gives undue weight to large hospitals, though it’s not immediately obvious which way this would skew the results.)
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About half of respondents expected a decrease in the number of uninsured patients, but only 3% expected a ‘material’ decrease. That number increased for Medicare expansion states, which you would expect, but only to 5% which is still quite low.
Not for profits are ‘extraordinarily cautious’
Almost identical numbers expect the combination of DHS cuts and coverage expansion to hurt their profits (48%) or give them a boost (3%). “We know from experience and recent conversations that NFP hospitals are generally extraordinarily cautious with respect to reimbursement risk and strategic change,” Taylor writes, though it’s hard to pin so much pessimism simply on the industry having a conservative bent.
Projected capex increases to 5.6%
The big surprise is that projected capex grew from 4.6% in 2013 to 5.6% for 2014, which implies that hospitals aren’t expecting to have any cash flow issues in the coming year. That doesn’t mean hospitals’ bearishness should be ignored, but it makes sense to look for some operational changes that would confirm the pessimism.
Even though hospital fundamentals look weak and Taylor sees a lot of pressure on margins, he doesn’t think that’s what is going to determine prices for 2014. “We don’t believe underlying fundamentals matter much in 2014 as investors will be far more focused on extrapolating the initial effects of Obamacare,” he writes.