Here's what for-profit systems are watching as 2025 approaches

By Caroline Hudson / September 9, 2024

Large for-profit healthcare systems are investing in new facilities to meet patient demand and navigating changes in reimbursement rules to ensure those care sites remain stable.

Executives from HCA Healthcare, Tenet Healthcare, Community Health Systems and Universal Health Services joined insurers, pharmaceutical companies and others in the spotlight this week at the annual Wells Fargo Healthcare Conference in Boston.

Discussions ranged from upcoming capital projects to supplemental payment programs.

Here are five takeaways from the for-profits' discussions.

1. Systems are changing how they invest capital.

For-profit providers are adjusting their capital spending to funnel resources toward future growth strategies.

Dallas-based Tenet, for example, has been slimming down its hospital portfolio for years. Earlier this year, Tenet sold four hospitals to University of California Irvine's health system and three South Carolina hospitals to Novant Health. It also announced plans to sell its majority stake in Birmingham, Alabama-based Brookwood Baptist Health.

Recent divestitures have helped Tenet reduce debt and position itself for other growth opportunities. Tenet continues to add ambulatory surgery centers through its United Surgical Partners International business.

"We like the portfolio better where it is," CEO Dr. Saum Sutaria said. "Seeing the company at a place where the leverage generates not only a degree of strategic and financial flexibility, but stability for the organization, stability to invest in growth over the next few years, is terrific."

Meanwhile, Community Health Systems, which is looking to sell facilities worth more than $1 billion in the next few years, is simultaneously turning its attention to acquisition opportunities. President and Chief Financial Officer Kevin Hammons said the system has more capital available than it did in recent years to fund a deal if the right one comes along.

2. Patient demand remains strong.

Hammons said Community Health Systems' volume growth is sustainable, and he expects more growth into 2025. Same-facility admissions grew 3.8% year-over-year in the first quarter and 3% in the second quarter, according to recent earnings reports. He said patients sought delayed check-ups or screenings in late 2023, which translated to an increased need for higher-acuity, inpatient care in early 2024.

Universal Health Services Chief Financial Officer Steve Filton said the health system expects acute care volume growth between 3% and 4% in 2024. He said the outlook may seem conservative given particularly strong volumes in 2023, but that was driven in large part by markets such as Nevada and California that were slower to recover after the COVID-19 pandemic.

Tenet's Sutaria said he expects patient demand stemming from the COVID-19 pandemic will continue into 2025.

3. Medicaid supplemental payments are here to stay.

Medicaid supplemental payment programs offer a much-needed financial boost for health systems.

HCA Chief Financial Officer Mike Marks said the programs "feel way more durable" with support from majority Republican and Democratic states.

"The notion that even if there was to be a change in either administration or Congress, etc., that all of a sudden these programs would be viewed with disfavor, I think would be a tough political sell," Filton said. "States like Texas and Florida, I think, would lobby pretty vigorously to maintain these programs because their hospital communities have really come to rely on them."

Hammons said Community Health Systems is waiting for the Centers for Medicare and Medicaid Services to approve supplemental payment programs in Tennessee and New Mexico, which he thinks could be approved by the end of the year. He said those programs could make a material difference on the health system's balance sheet.

4. The future of exchange subsidies is uncertain.

Health systems are benefiting from enhanced subsidies for Affordable Care Act exchange plans.Exchange plan membership increased once Medicaid redeterminations began, as patients no longer eligible for Medicaid transitioned to individual plans.

HCA's Marks said the industry has to wait until after this year's elections for a better sense of what will happen with enhanced subsidies, which were first implemented as part of the American Rescue Plan Act of 2021 and then extended through 2025.

Marks said exchange plans are HCA's second-best payer group after commercial plans, and the system has cost management initiatives in place that could help offset the impact of enhanced subsidies ending.

Insurance companies have said the subsidies boost their business as well, and expect them to be extended in some way.

5. Effects of the two-midnight rule change are limited.

The for-profit systems aren't seeing a huge benefit from this year’s two-midnight rule change that pulled in Medicare Advantage insurers.

The two-midnight rule dictates that Medicare must pay for an inpatient stay if clinicians anticipate patients will be in the hospital for at least two midnights. The rule allows hospitals to categorize more patient visits as higher-cost, inpatient care.

"We don't really detect a material change in our volumes as a result of the expansion of the two-midnight rule," UHS' Filton said.

Hammons said Community Health Systems has seen growth in short-stay inpatient admissions since the rule change, but he attributes much of that to internal efforts to ensure appropriate supporting documentation, not a change in payer behavior.