For-Profit Hospitals Exceed Q3 Expectations, Driven by Medicaid Supplemental Payments

Major for-profit hospital systems in the United States have reported strong third-quarter earnings, surpassing analysts' expectations. This surge in performance is largely attributed to increased revenue per case, with Medicaid supplemental payments playing a pivotal role.

Revenue Boost from Medicaid Supplemental Payments

HCA Healthcare, Community Health Systems, Universal Health Services, and Tenet Healthcare all cited Medicaid supplemental payments as a significant factor in their revenue growth. These payments, designed to cover the gap between Medicaid reimbursement rates and actual care delivery costs, contributed substantially to the hospitals' financial performance:

• Community Health Systems reported that state-directed payments accounted for about a third of its 5.6% increase in same-store net revenue per adjusted admission.
• HCA Healthcare attributed half of its 6.6% jump in same-facility revenue per equivalent admission to supplemental payment increases.
• Universal Health Services credited these payments for a significant portion of its 9.8% growth in same-store revenue per adjusted admission within its acute hospital segment.
• Tenet Healthcare acknowledged the programs' contribution to its 5.9% increase in same-hospital net patient service revenue per adjusted admission, including $148 million in out-of-period payments received this year.

Additional Factors Driving Revenue Growth

While Medicaid supplemental payments were the primary driver, executives also highlighted other contributing factors to their strong financial performance:

1. Favorable shifts in patient insurance coverage
2. Higher acuity of cases and services provided
3. Improved rates negotiated with payers
4. Effective revenue cycle management, particularly in resolving claims disputes

These factors collectively led to substantially higher revenue per individual case across the hospital systems.

Outlook and Industry Implications

The robust Q3 results have prompted several companies to revise their 2025 forecasts upward. Universal Health Services raised its projection, citing approximately $100 million in miscellaneous state-directed payment program increases during the quarter. HCA Healthcare increased its adjusted EBITDA guidance by $450 million, with $250 million attributed to expected net benefits from these payments.

However, executives remained cautious about long-term projections, particularly regarding 2026. They cited uncertainties in the federal policy landscape and the potential impact of the One Big Beautiful Bill Act, which is set to reduce these supplemental payments in the coming years.

The ongoing government shutdown has also introduced uncertainty, potentially causing delays in payment approvals. Despite this, HCA's CFO Michael Marks noted that reviews between CMS and several states remain active during the shutdown.

As the industry awaits further developments, these hospital systems are proceeding with plans to expand their acute care businesses, focusing on high-acuity services and network growth in preferred markets. The positive Q3 results have been reflected in the stock market, with all four companies trading higher following their earnings announcements.