How sequester cuts will hurt hospital chains

Hahnemann University Hospital is owned by Texas-based Tenet Healthcare Corp. It stands to lose as much as 4 percent of its earnings under sequestration cuts.

The planned 2% cut to Medicare spending that's part of President Obama's federal "sequester" budget cuts will trim nearly 4% from earnings at suburban hospital operator Community Health Systems Inc., almost as much from Hahnemann and St. Christopher's operator Tenet Healthcare Corp., and almost 3% from King of Prussia-based mental-health clinic chain Universal Health Servcies Inc., writes Dean Diaz, analyst at Moody's Investors Service, in a report on for-profit hospital chains.

The cuts also mean higher debt ratios, which will press hospital operators to further "cost containment" or the risk of lower credit ratings/higher borrowing costs, warns Diaz. Of course, "cost containment" is one of the things Obama promised, when he said expanded Medicare and Medicaid availability should be partly offset by lower expenses...

Community, Tenet and Universal all claim Medicare revenues in the 20%-30% range. Things are worse for chains that are more Medicare-dependent, like HealthSouth Corp., and some of the nonprofit hospital groups that focus on poor urban and rural communities.