Citi’s “Worst Ever” Hospital Survey

Sounds bad, but is it?

Citi recently published a hospital survey which, according to the headlines, showed the “worst ever” results for hospital admissions in the latest reading. While it’s tempting to skip directly to the conclusion to sell or short hospitals stocks, you should put some major caveats around the headlines.

The Bad (sort of)

1. Flu is weak against the emergency season we had last year. Incidence is running -10% below last year. But flu cases are mainly Medicare and don’t pay very well.
2. Maternity, which represents 25% of hospital admissions, is weak in Q413 (our physician survey) while compares are the toughest in 6 years. Again, a low acuity and a low price. By the way compares get easier the next two quarters.

The Good

1. Physician visits are improving over the last 6 months (our survey, not shown).
2. Ortho and Cardio surgical trends, the single most important driver of hospital inpatient volume, price, and margins, are accelerating. We can see this in reported hospital surgical trends, results among medtech companies in Q3, and our Macro indicators.
3. I know 3 people who signed up for Obamacare. One of them is a 45 year old carpenter with a chronic hip problem, and who has already scheduled his hip resurfacing surgery (average price of $57,000 per case).

Maternity has a tough compare Q413 and drives 25% of inpatient volume

>50% of Inpatient cost are driven by the top 17 procedures, mostly in Orthopedic and Cardiology