By Jill Brown - September 12, 2011

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Tenet Healthcare Corp. today warned investors that lower severity of illness among Medicare patients and higher admissions among Medicaid patients could drag down third-quarter earnings for the giant hospital company. It also may signal possibly improving performance among Medicare Advantage plan operators for the third quarter of 2011, but lower results for Medicaid plans, securities analysts said.

Publicly traded hospital chain Tenet today said it expects full-year adjusted earnings before interest, taxes, depreciation and amortization to fall at the low end of the $1.175 billion to $1.275 billion range it set earlier. Despite a healthy 1.8% increase in overall patient volume, Tenet blamed the change in projections on “significant growth in Medicaid volumes and declines in Medicare acuity.”

HCA Healthcare first highlighted the trend of lower acuity when it reported second-quarter earnings, noted Oppenheimer securities analyst Michael Wiederhorn. “If the mix shift is widespread, both [Humana] and [HealthSpring] could see their costs decline in upcoming quarters, which would help boost earnings,” he said.

Meanwhile, Tenet said Medicaid admissions are up 5.5% — accounting for more than 75% of the company’s admissions growth since June 30. Stifel Nicolaus securities analyst Thomas Carroll said Tenet’s experience “dovetails” with that of managed Medicaid plan operator Amerigroup Corp. That company’s “management has recently commented that the historically low cost trend experienced over the prior six quarters is increasing but remains within company expectations,” Carroll said. Tenet’s comments support Amerigroup’s warning that medical cost trends may rise during the second half of 2011 “and should pinch profit margins.”

Tenet is just one hospital company — although a very large one. What do you think — does Tenet’s experience reflect the overall trends among Medicare and Medicaid patients? If so, how should health plans respond?