For-Profit Hospitals See Revenue Surge Driven by Medicaid Supplemental Payments

Major for-profit hospital systems in the United States have reported substantial revenue increases in their third-quarter earnings, largely attributed to Medicaid supplemental payments. This unexpected boost has led to revised forecasts and renewed focus on high-acuity services and market expansions.

Medicaid Supplemental Payments Drive Earnings

HCA Healthcare, Community Health Systems, Universal Health Services, and Tenet Healthcare all surpassed analysts' expectations this quarter, with significantly higher revenue per individual case. Executives cited Medicaid supplemental payments as the primary factor behind this growth, alongside improvements in payer mix, case acuity, and negotiated rates.

These supplemental payments, designed to cover the gap between Medicaid reimbursement rates and actual care delivery costs, played a crucial role in boosting hospital finances. For instance, Community Health Systems reported that state-directed payments accounted for about one-third of its 5.6% increase in same-store net revenue per adjusted admission. Similarly, HCA Healthcare attributed half of its 6.6% jump in same-facility revenue per equivalent admission to these payments.

Universal Health Services experienced a 9.8% increase in same-store revenue per adjusted admission within its acute hospital segment, with supplemental payments contributing significantly. The company also noted approximately $100 million in miscellaneous state-directed payment program increases during the quarter, with more expected in Q4.

Financial Outlook and Strategic Focus

The unexpected influx of Medicaid supplemental payments has led several hospital systems to revise their financial projections for the year. HCA Healthcare increased its adjusted EBITDA guidance by $450 million, with $250 million attributed to the expected net benefit from these payments. Universal Health Services also raised its 2025 forecast based on the supplemental payment increases.

While Tenet Healthcare acknowledged the impact of these payments on its 5.9% increase in same-hospital net patient service revenue per adjusted admission, it noted that excluding $148 million in out-of-period payments, revenues from these programs have been "right in the middle" of 2025 expectations.

Looking ahead, hospital executives are cautious about making definitive predictions for 2026, citing the uncertain federal policy landscape. However, they generally anticipate steady volume growth, stable expense lines, and pricing increases led by a Medicare rate adjustment. These prospects have encouraged health systems to proceed with plans to expand their acute care businesses, with a particular emphasis on high-acuity services and strategic market expansions.

Industry Challenges and Future Considerations

Despite the positive financial results, the hospital industry faces potential challenges. The One Big Beautiful Bill Act is set to reduce Medicaid supplemental payments in the coming years, which could impact future revenue streams. Additionally, the ongoing government shutdown has raised concerns about potential delays in payment approvals.

The debate over subsidies for Affordable Care Act (ACA) exchange plans is another area of focus for hospital executives. While ACA enrollees represent a relatively small portion of net revenues (less than 5% for Community Health Systems), any changes in coverage could have implications for care-seeking behaviors and hospital revenues.

Saum Sutaria, CEO of Tenet Healthcare, expressed cautious optimism regarding a potential compromise on ACA subsidies, stating, "Much of what we're hearing is that it may take time, but a compromise will be achieved, from our intelligence coming from Washington."

As the industry navigates these challenges and opportunities, for-profit hospitals continue to adapt their strategies to maximize revenue and expand their market presence. The coming months will likely see continued focus on high-acuity services, strategic expansions, and efforts to optimize reimbursement from various payment programs.