Hospital Stocks Tumble as BofA Warns of Looming Profit Squeeze
Major operators like HCA Healthcare and Universal Health Services fall after analysts flag significant reimbursement and policy risks ahead.
Shares of major US hospital operators fell sharply on Tuesday after Bank of America issued a cautious note on the sector, warning of a looming profit squeeze driven by mounting policy and reimbursement pressures.
The report triggered a broad sell-off in the healthcare facilities sector. Shares of HCA Healthcare (NYSE: HCA), one of the nation's largest operators, dropped 2.44% to $471.79 in afternoon trading. Other providers saw steeper declines, with Universal Health Services (NYSE: UHS) tumbling 5.84% to $208.79, and Tenet Healthcare (NYSE: THC) falling 3.39% to $201.18.
Bank of America's analysts projected a significant 2% to 4% annual headwind to hospital earnings before interest, taxes, depreciation, and amortization (EBITDA) over the next five years. The downbeat forecast stems from a confluence of regulatory and funding challenges expected to intensify.
At the core of the issue are changes to government healthcare funding. The note highlights risks from the potential expiration of enhanced Affordable Care Act (ACA) subsidies, which have helped reduce the number of uninsured patients seeking care. According to recent healthcare policy analysis, these expirations, combined with other funding cuts, could cause over 6 million people to lose health coverage and increase hospitals' uncompensated care costs.
Further pressure comes from the Centers for Medicare & Medicaid Services (CMS), which is actively promoting a shift from traditional inpatient care to lower-cost outpatient settings. Recent regulatory updates have expanded the list of procedures approved for Ambulatory Surgical Centers (ASCs) while removing others from the inpatient-only list, directly challenging a core revenue stream for large hospitals.
While the entire sector faces these headwinds, Bank of America's note suggested the impact will not be uniform. The analysts reportedly identified Universal Health Services as being particularly vulnerable to the changing landscape. In contrast, Tenet Healthcare was noted as a top pick within the sector, largely due to its significant and growing portfolio of ambulatory surgery centers, which positions it to benefit from the very trend pressuring its hospital operations.
HCA Healthcare, despite its decline, is considered by many analysts to be better positioned than some peers due to its scale and operational efficiency. The Nashville-based company operates 186 hospitals and approximately 2,000 ambulatory care sites.
The sell-off reflects growing investor anxiety over the long-term profitability of a sector grappling with high labor costs, complex regulations, and the ever-present threat of policy changes from Washington. As the market digests these new warnings, investors will be closely watching for company guidance on how they plan to navigate the challenging reimbursement environment ahead.