Why did for-profit hospital systems blow past analysts’ expectations this quarter? Short answer—they got paid.
Across the past week’s earnings statements and calls, executives outlined solid demand for care services and no major curveballs surrounding expense lines like labor spending. Both of those trends are expected to continue through the end of this year and into 2026, they said, with other hurdles like elevated supply spend from tariffs not yet creeping into purchasing contracts.
More impactful for earnings lines, however, were the handful of factors that converged to boost the revenues hospitals and their facilities received per individual case.
Favorable shifts in patients’ source of insurance coverage played a key role here, as did the acuity of cases and services being provided, the rates hospitals were able to demand and revenue cycle teams tasked with promptly winning claims disputes with payers.
However, the leading contributor cited by the systems was payments received from various states’ Medicaid supplemental payment programs—the additional reimbursements paid to hospitals to cover the difference between Medicaid reimbursement rates and the actual costs of delivering care.
The payments (set to be clipped in a few years under the One Big Beautiful Bill Act) are directed by states but authorized by the Centers for Medicare & Medicaid Services. That structure has led to uncertainty and application delays amid this year’s political upheaval and, potentially, another short-term approval pause amid the ongoing government shutdown.
All that said, the funds were flowing during the third quarter, including some awaited payouts from prior periods that the companies framed as one-time items rather than recurring growth.
For Community Health Systems, the recently approved state-directed payments comprised about a third of the quarter’s 5.6% same-store net revenue per adjusted admission jump, executives said during their earnings call. HCA Healthcare attributed half of its 6.6% jump in same-facility revenue per equivalent admission to the supplemental payment increases, as did Universal Health Services for the 9.8% same-store revenue per adjusted admission jump within its acute hospital segment.
The programs often played a role in the systems’ updated projections for the year. Universal Health Services pointed to roughly $100 million of miscellaneous state directed payment program increases during the quarter, and more expected in the fourth quarter, for its raised 2025 forecast. HCA Healthcare attributed $250 million of the $450 million increase to its adjusted EBITDA guidance to expected net benefit from the payments.
Tenet Healthcare was the closest to an outlier on the state supplemental payments, acknowledging that the programs contributed to its 5.9% increase in same-hospital net patient service revenue per adjusted admission but that, excluding the $148 million of out-of-period payments it’s received this year, revenues from the programs have been “right in the middle” of expectations for 2025.
The companies often noted that their revised guidances do not include additional pending supplemental payment programs applications beyond what they’d announced.
They also largely abstained from prognosticating on next year’s supplemental payments, though, in the meantime, HCA Chief Financial Officer Michael Marks said the company has “reports that indicate that the reviews between CMS and [several states] are active [and] continue during the shutdown.”
On the whole, the companies punted major predictions on 2026 until their next quarterly call, often citing the shifting federal policy landscape. At most, they conceded general expectations of steady volume growth, no severe changes to their expense lines and pricing increases led by a Medicare rate bump. Those prospects have the health systems broadly moving ahead on plans to grow their acute care businesses, often with a focus on high-acuity services or network expansions in their preferred markets.
As for the current debate over subsidies for Affordable Care Act (ACA) exchange plans, executives told investors they haven’t yet seen any changes in care-seeking behaviors among enrollees, such as a rush to book elective surgeries due to fears of losing coverage. Such activity would have clear but limited benefit, they said.
ACA exchange enrollees are “a relatively small component of our net revenues, less than 5%," Community Health Systems President and interim CEO Kevin Hammons told analysts. "So I don't think it's a real material needle-mover for us, but it potentially could be a slight positive.”
The health system executives generally said they’re rooting for Congress to cut some kind of deal to extend the subsidies, but only Tenet’s CEO, Saum Sutaria, M.D., seemed to have any insider information.
“Much of what we’re hearing is that it may take time, but a compromise will be achieved, from our intelligence coming from Washington,” he told analysts. “We are just sort of patiently waiting to see what happens there.”
As of Thursday, HCA Healthcare, Community Health Systems, Universal Health Services and Tenet Healthcare’s stocks are all trading higher compared to their pricing immediately ahead of earnings season.