• Analysis: Ahead of Reform, Medical Care Slowdown Hits Companies

    Posted on July 16, 2013 by in Breaking News

    Life Insurance, Medicare, CJB Insurance Inc.

    Reuters By Bill Berkrot –

    April 22, 2013:

    As the clock ticks down to the start of a U.S. healthcare overhaul, companies from device makers to hospital chains have been surprised to see Americans make even fewer trips to the doctor’s office.

    Use of non-emergency medical services has been weak for several years in the wake of a deep recession, high joblessness and the steadily rising cost of care.

    Those trends now may be exacerbated in the months before President Barack Obama’s healthcare law takes full effect in 2014, analysts said. Part of the reason is that employers are shifting more of the insurance benefits they offer to so-called high-deductible plans, requiring employees to pay more for their medical care upfront, to buffer new costs they face under “Obamacare”.

    This is all starting to show in some weak and disappointing earnings reports for the first quarter.

    “It’s still early in the reporting season, but so far it all points to softness. In the U.S. volumes at hospitals, in-patient and out-patient are soft,” said David Heupel, senior healthcare analyst at Thrivent Investment Management.

    In the past week, medical testing companies, such as Quest Diagnostics, medical device makers Johnson & Johnson and Abbott Laboratories, hospital operators, such as HCA Holdings Inc, and even diaper maker Kimberly-Clark, which has a surgical supply unit, have cited a slowdown in use of medical services.

    Kimberly-Clark executives on Friday noted that other companies have reported surgical admissions down about 4 percent in the first quarter. Earlier this week, J&J reported a 10.5 percent decline in its U.S. surgical sales, and Chief Financial Officer Dominic Caruso said a modest upswing in medical device use seen in the fourth quarter did not persist into 2013.

    JP Morgan analyst Michael Weinstein, in a research note, said U.S. physician office visits were down 3.3 percent in March from a year ago, after a 3.6 percent decline in February. And HCA on Monday warned about a slowdown in the growth of hospital admissions and weakness in outpatient volumes in the quarter.

    “We’ve been seeing very similar trends come out that suggest utilization, which had started to pick up steam in the second half of 2012, seems to be sort of decelerating in the first quarter,” said Morningstar analyst Debbie Wang in reference to the medical technology sector.

    Obama’s healthcare law aims to extend insurance coverage to over 30 million additional Americans. While that will mean new clients for insurance companies, the law also requires them to bear new costs including full coverage of preventive health services. The Obama administration also has introduced a new tax on medical devices and provides for greater scrutiny of drug reimbursement, both of which may put pressures on pharmaceutical companies and device makers.

    The first wave of earnings reports and cautionary messages have already take a toll on some share prices.

    The Dow Jones U.S. Medical Equipment Index finished down 2.7 percent for the week. St. Jude Medical shares were off 3 percent and Quest shares have fallen 4 percent since they reported first-quarter results on Wednesday.

    HCA shares have declined 0.7 percent since Monday’s announcement, about in line with the 0.6 percent decline in the broader S&P 500 Healthcare Index.

    However, larger more diversified companies such as JNJ and Abbott, with less exposure to medical care usage trends, both saw shares rise after reporting first-quarter earnings.


    Industry analysts said it was too early to gauge the full effect healthcare reform will have on corporate profits in 2013, and some are skeptical that trends seen in the first quarter are related to the new law.

    “It’s just a continuation of this low utilization environment that we’ve been in, driven by the weak economy and lack of job growth – the same macro drivers that have been impacting the provider world for a few years now,” said Thomas Carroll, an analyst with Stifel Nicolaus and Co who follows the healthcare insurance industry.

    However, Carroll did acknowledge that employers may already be shifting more healthcare costs to employees in anticipation of changes to benefit plans.

    UnitedHealth Group Inc, the largest U.S. health insurer, on Thursday said it had seen an 18 percent rise in the number of consumers enrolled in high-deductible health plans in the first quarter.

    These consumers are likely to put off non-urgent medical care until after they have paid their maximum deductibles in the year.

    “People will consume healthcare services after they’ve met their deductibles, and so the fourth quarter will be strongest,” said Heupel.

    Morningstar’s Wang agreed that the pattern of healthcare consumption, with weakness seen in the first six months of the year followed by a stronger finish, was likely to continue.

    “Because cost sharing is not something that we think is going to diminish any time soon, as more of those out-of-pocket costs are shifted on to people, I think you will see this type of seasonal affect,” she said.

    Source: John & Rusty Report via Choice Admin

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