May 17, 2022


Skillful Business Crafters

What to expect from payer, provider Q3 earnings

The third quarter was a tumultuous period for the nation and healthcare sector, particularly for providers as COVID-19 cases soared along with hospitalizations. 

The impact will become evident in upcoming earnings reports as payers and providers report third quarter results over the next few weeks. The intense volume of COVID-19 patients will likely influence winners and losers for the third quarter.

The persistent prevalence of COVID-19, especially in certain areas of the country, disrupted operations again for many providers. Stretched to capacity with COVID-19 patients, some hospitals were forced to once again delay non-emergency procedures to free up resources. In mid-September Intermountain Health out west alerted patients of the pause on procedures at 13 of its hospitals, and AdventHealth in Florida was operating under similar limitations in mid-July.   

For providers, it could mean a hit to their bottom lines.

“Higher total medical cost trend is a key investor concern for managed care and risk-bearing providers. High labor cost is a key investor concern for traditional providers,” analysts with Cowen said in a recent note, adding that they expect mixed results for the quarter.

Not all providers are expected to take financial blows amid the tumult.

HCA is a top pick to beat 3Q earnings expectations, Cowen analysts said. In July, HCA hiked its full-year guidance as it expected demand for care and services to continue throughout the rest of the year.

For their part, payers could see profit boosted if they paid for fewer healthcare episodes either due to forced delays, or after members deferred care on their own as cases climbed, a trend evident throughout the pandemic.

A potential bright spot is the current COVID-19 wave may have peaked. Both cases and hospitalizations nationwide have been on a downward slide over the last several weeks.  

In late September, Cleveland Clinic’s own projections showed hospitalizations were nearing a peak, signaling volumes in Ohio were close to reaching an apex before heading into their own downswing, on par with national trends.

Declining cases are likely a welcome sign for nurses who say they’re exhausted and burned out. Labor shortages will be a key issue to watch during the third quarter. Hospital operators say labor expenses are on the rise as they’ve had to turn to expensive arrangements with outside agencies to fill shortages and offer big sign-on bonuses to recruit and retain staff. 

For payers, a return to more normal non-COVID-19 volumes may also mean a return to pre-pandemic profit levels. Last year, insurers experienced record profits as many patients deferred care. 

Insurers have been keeping tabs on utilization. A surge in care from pent up demand could hike medical loss ratios, an important measure of how much an insurer is spending on care. 

Analysts with SVB Leerink expect COVID-19 utilization for the third quarter to be “well above” levels seen during the first half of the year. The trend may signal trouble for Cigna, the insurer most at risk in the near term, because the company had expected direct COVID-19 costs to decline in the back half of the year, SVB Leerink analysts said in a recent note.   

“We estimate that markets in which [Cigna] operates exited 3Q21 with COVID utilization 32% higher vs. [the first half of the year],” according to the SVB Leerink note. 

UnitedHealth Group, an industry bellwether, kicked off earnings season last week. UnitedHealth’s insurance business, UnitedHealthcare, reported an MLR of 83%, slightly lower than analyst expectations, but higher compared with Q3 of last year due to widespread deferred care amid the pandemic. 

Overall, UnitedHealth Group reported strong financial results for the third quarter and hiked its full-year forecast.

This week Anthem, Tenet and HCA are set to report third quarter results. Healthcare Dive will track the earnings closely, stay tuned for upcoming coverage.