OREANDA-NEWS. A group of the largest Fitch-rated U. S. for-profit hospital companies reported an average of 0.2% organic growth in inpatient admissions and 2.8% organic growth in admissions adjusted for outpatient activity in first quarter 2016 (1Q16). Year-over-year rates of growth dropped significantly versus 1Q15, and although seasonal issues played a role, secular headwinds to growth are persistent.

These headwinds are having the greatest effect on less-acute patient volumes and it was evident in first-quarter results. Companies with a business mix weighted towards rural hospital markets with a high exposure to less-acute patient volumes, including Community Health Systems, Inc. (CHS) and LifePoint Health, averaged minus 3.7% year-over-year organic growth in admissions and 0.7% growth in admissions adjusted for outpatient activity, versus 2.3% and 3.8% respectively for peers focused on large suburban and urban hospital markets.

Fitch does not expect a near-term reversal or even an easing of secular headwinds to less-acute hospital patient volumes. Most notably, these include pressure by payors to reduce short-stay admissions and efforts to reduce readmissions to avoid financial penalties. Growth in the consumer share of healthcare spending through high-deductible health plans encourages patients to seek care in less expensive settings outside of the acute-care hospital. Technological advances that allow more complex cases to be handled in outpatient settings aid payors and patients in their efforts to reduce relatively expensive hospital care.

Companies that are highly exposed to less-acute volumes are responding by actively adjusting the portfolio of care delivery assets to improve the business mix. While this is a strategy that Fitch believes is necessary to improve both organic growth prospects and profitability, it does add risk to the credit profile. Amongst the group of Fitch-rated companies, the effect of this business mix adjustment is currently most evident for LifePoint Health. Fitch is forecasting a 140 bps decline in LifePoint's operating EBITDA margin in 2016 due to the integration of less-profitable acquired hospitals.