Second quarter profits may be just a reprieve

Well, it looks like it's been a nice quarter for hospital companies and health plans, several of which have turned in profitable second-quarter results. This is particularly striking given that a couple of quarters ago, we were seeing the kind of depressing performances you might expect in the midst of a recession and a financial-industry meltdown. Now, it seems the sun is shining again.

That being said, I'm doubtful that these profits represent a major change. In the case of the health plans, some of the net income gains came from control over their medical expenses. No matter what the managed care execs tell you, nobody can keep those numbers low indefinitely. After all, with medical costs rising, there's only so much plans can do to control their medical outlays. Another bright spot seems to have been growth in commercial membership, but while that's a nice revenue increase, it's not something they can count on every quarter. While they won't be pitching it this way on Wall Street, I'd argue that their situation will remain volatile for the foreseeable future.

OK, how about the improved hospital results that came out in the last several days? HCA, for example, saw a 21.6 percent growth in net income for the second quarter on revenue growth of 3.7 percent, despite falling surgical volumes and flat admissions. Sounds great. But it's hard for me to imagine that numbers that looked good despite flat admissions and falling numbers of surgeries will stay that way for long. Oh, and as for the other thing touted by Wall Street analysts--that HCA managed to set aside almost enough money to pay its bad debts? Sounds nice, too, but what about the fact that HCA's debt rates continue to rise? That kind of drain isn't sustainable, either.

Why am I being such a crank? Well, here's my beef. Given how hard it is to make a buck in the healthcare business, Wall Street-ies are quick to seize on good news whenever it arises. No doubt, in some companies' case, the enthusiasm is warranted. But more often, good results from companies in our industry are based on short-term shifts in an extremely complex landscape. 

I guess I'm arguing that those who invest in healthcare organizations, too often, are dazzled by improvements without paying enough attention to whether the fundamentals have changed (which to my knowledge, they certainly haven't when it comes to health plans or hospitals). I believe it would be better for our industry, as a whole, if investors were more focused on the long-term fundamentals of our business. In the meantime, though, I guess it's going to have to be enough that we are. - Anne