Sources of revenue
For-profit hospitals like HCA Holdings (HCA), Tenet Healthcare (THC), Universal Health Services (UHS), and Community Health Systems (CYH) receive payments from federal Medicare, state Medicaid, or similar programs, managed care, third-party payers, and directly from patients. You can reduce your dependence on payment variations from different payers by investing in the Healthcare Select Sector SPDR ETF (XLV).
The above graph is a representation of the payer mix exhibited by Community Health Systems (CYH) from 2011 to 2013.
Medicare is a national social insurance program providing health insurance to all US citizens aged 65 and older and young persons with disabilities who receive Social Security Disability Insurance (or SSDI). The revenue percentage of Medicare as part of the total revenues of Community Health Systems has gradually declined from 26.8% in 2011 to 24.9% in 2013.
Medicaid is a social healthcare program funding medical and health services for low-income people in the US. The Patient Protection and Affordable Care Act (or ACA) aims to expand Medicaid coverage by extending the program eligibility criteria. But the act has made the conditions optional for state governments that can choose to continue with pre-ACA eligibility conditions.
Out of the 29 states where Community Health Systems operates, 12 states are expanding their Medicaid programs. However, the three states of Texas, Indiana, and Pennsylvania, which are a major source of hospital revenues, have opted out of expansion.
Managed care and third-party payers
Managed care and third-party payers include private insurance companies, Medicare managed care, or commercial companies acting as a medium to provide Medicare facilities and employer-sponsored insurance.
The self-pay proportion of Community Health Systems’ total revenues increased from 12% in 2011 to 13.7% in 2013. This proportion is substantially higher than the industry average of 3%, indicating that the company’s total customers not enrolled in any insurance program are more than the average percentage of uninsured people in the US.
For more information about payer industry figures, see Who pays hospital bills? Analyzing hospitals’ payer mix.