OREANDA-NEWS. Continued strength in organic growth in volumes of patients experienced by the acute care hospital industry is likely to help maintain strong for-profit hospital earnings, according to Fitch Ratings. 1Q15 results are expected early next month.

We believe strong operating trends witnessed in the second half of 2014 are likely to carry over to the early part of 2015. Improving economic conditions in many markets and a ramp up of the positive influence of the Affordable Care Act will be persistent tailwinds to growth early in the year.

The Fitch-rated group of companies reported growth in same-hospital patient admissions of 2.5% and in 4.6% growth in admissions adjusted for outpatient activity in 4Q14. Our operating forecast for the industry incorporates a similar organic growth rate in 1Q15.

However, we believe it is likely that first quarter results will be the strongest of the year as positive effects of some of the tailwinds to growth taper off later in the year.

Organic growth in volumes of patients is important for the industry since the cost structure of an acute care hospital results in a great deal of operating leverage. Because of this, strong volume growth has an outsized effect on operating margins and ultimately, cash generation. A return to weaker trends in volume growth is a threat to profitability and the recently above trend growth in inpatient admissions, in particular, is not likely to be sustainable because of certain secular changes taking place in the healthcare sector.

Recent efforts by hospital industry management teams to grow share of outpatient volumes will support overall organic growth and lend support to operating margins later in the year. However, some strategies employed to grow outpatient share have added risk to credit profiles. Tenet Healthcare Corp.'s (Tenet) announcement that it plans to acquire 50.1% of the business of United Surgical Partners International (USPI) is a recent example. The acquisition of ambulatory surgery centers makes good strategic sense since it will expand Tenet's footprint of outpatient facilities and USPI's unique three-way financial partnership structure will enhance Tenet's economic alignment with physicians and local hospital systems. Still, financing the transaction will also add a good deal of debt to Tenet's capital structure.

The full report, "Hospitals' Credit Diagnosis: Operating Performance Strength to Persist in Early 2015," is available at www.fitchratings.com. The report provides a summary of the quarterly operating performance and credit metrics of companies in the for-profit hospital sector, including detailed debt and organizational structure charts.