However, expanded health insurance coverage under the Patient Protection and Affordable Care Act in 2014 should spark modest EBITDA growth. "Volumes and pricing should see more positive momentum in 2014, as the provisions of the PPACA start to kick in, including, most importantly, the expansion of coverage to approximately 27 million individuals currently without insurance," Diaz said.
The mandated 2% sequestration cuts to Medicare will remain a "wild card" for for-profit hospitals. The cuts took effect on March 1 but they could be repealed if Congress and the Obama administration agree on some sort of compromise. If they can't make a deal, EBITDA will sag in 2013, Diaz said.
In the coming months, for-profit hospitals will focus on controlling medical device and drugs costs. Uncompensated care costs should decline as the number of insured increases next year.
Until then, Diaz says, margins will be tight as hospitals by other hospitals, hire more physicians and buy their practices, all of which will dilute margins in the short term.