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Third-Quarter Earnings Miss Causes Hospital Shares to Sink

Hospital stocks feel the heat following a big chain’s warning that it won’t meet third-quarter expectations

Community Health Systems warned Wall Street that it wouldn’t meet third-quarter earnings expectations, and a number of hospital shares sank following the news

As The Wall Street Journal reported, Community Health Systems said October 21 after markets closed that patient admissions fell about 2% at its established locations in the quarter, and it saw a decrease in the percentage of people covered by commercial insurance, which offers the best reimbursement. The Franklin, Tennessee, chain expects adjusted earnings for the quarter that ends September 30 to be 56 cents per share. That falls well below the average of 72 cents per share expected on Wall Street, according to FactSet.

Community's earnings preview came a week after HCA Holdings Inc. also said it would miss expectations for the quarter and that it was hit by higher labor costs and a greater percentage of uninsured patients.

Goldman Sachs analyst Matthew Borsch said in a research note that hospitals have seen several quarters of patient growth as the Affordable Care Act expanded patient coverage to the uninsured, and this may be a "big chill" on that.

The timing of Labor Day also may have hurt hospitals in the third quarter, BMO Capital Markets analyst Jen Lynch said. Labor Day fell later this year, and patients generally avoid scheduling inpatient procedures before the holiday weekend and then immediately after it. That could have led to slower-than-expected business in the quarter's final month.

Source: The New York Times, October 22, 2015.

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