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HCA’S earn­ings show de­cline in surg­eries

Modern Healthcare - - Front Page - Vince Gal­loro

De­spite re­cent trend, HCA’s earn­ings re­port shows de­cline in surg­eries

Most of the in­vestor-owned com­pa­nies that re­ported sec­ondquar­ter earn­ings last week stayed true to the script: With a weak econ­omy, pa­tients are de­lay­ing elec­tive and lessur­gent pro­ce­dures, so the cases that re­main have higher acu­ity. Vol­ume is weak, but the busi­ness that re­mains is more prof­itable.

When the ex­cep­tion to the rule is HCA, how­ever, ev­ery­one takes no­tice, es­pe­cially when the Nashville-based gi­ant isn’t quite sure it­self what to make of the drop in acu­ity it re­ported for its Medi­care busi­ness.

HCA re­ported vol­ume in­creases of 1.8% in ad­mis­sions and 1.9% in equiv­a­lent ad­mis­sions com­par­ing the quar­ter with 2010’s sec­ond quar­ter on a same-fa­cil­ity ba­sis. But the com­pany’s mix of busi­ness shifted to low­er­in­ten­sity cases, as surg­eries de­clined by 1% and the ad­di­tional med­i­cal ad­mis­sions the com­pany re­ported were of lower acu­ity too, ac­cord­ing to Mil­ton John­son, HCA’s pres­i­dent and chief fi­nan­cial of­fi­cer. HCA’s Medi­care case-mix in­dex de­clined 1.2% com­par­ing the quar­ters; John­son said it’s the largest de­cline he can re­mem­ber.

Sam Hazen, pres­i­dent of op­er­a­tions, said some pos­si­ble ex­pla­na­tions in­clude the soft econ­omy, tech­nol­ogy and drug en­hance­ments that re­duce the need for more com­plex care and changes in physi­cian re­la­tion­ships be­cause of moves by com­pet­ing hos­pi­tals to lock up those physi­cians. Hazen added, how­ever, that the com­pany has gained physi­cians in many mar­kets too.

Jeff Vill­wock, man­ag­ing di­rec­tor of Atlanta-based Ge­n­e­sis Cap­i­tal, said he has heard that some tax-ex­empt providers are ex­pe­ri­enc­ing a sim­i­lar de­cline in acu­ity, but those re­sults are coun­ter­in­tu­itive. The other in­vestor-owned com­pa­nies that re­ported last week saw in­creases in their case-mix in­dex and mostly lower vol­ume, es­pe­cially on the in­pa­tient side, and that makes sense, Vill­wock said. In a weak econ­omy, with em­ploy­ment still not grow­ing and with other prices ris­ing for things like gas and food, it makes sense that the less-ur­gent pro­ce­dures are be­ing de­layed, he said.

Equity in­vestors ham­mered HCA’s shares, with the stock drop­ping nearly 20% on the date earn­ings were re­leased, July 25, and then drift­ing down a bit more through the end of the week clos­ing at $26.68, ac­cord­ing to Com­mod­ity Sys­tems. Bond in­vestors, how­ever, greeted two new is­sues that HCA an­nounced last week with open arms. Orig­i­nally plan­ning to bor­row $1 bil­lion in two note is­sues due in 2020 and 2022, HCA sold $5 bil­lion in notes, ac­cord­ing to se­cu­ri­ties fil­ings. The pro­ceeds will be used to pay off two is­sues due in 2016 with higher in­ter­est rates than the new notes.

Also closely watched last week were the sec­ond-quar­ter re­sults of Com­mu­nity Health Sys­tems, its first quar­terly re­port since Tenet Health­care Corp. filed a law­suit against Com­mu­nity on April 11. Com­mu­nity, Franklin, Tenn., spent about $6.2 mil­lion in the sec­ond quar­ter on legal fees and other costs associated with the Tenet law­suit, gov­ern­ment in­ves­ti­ga­tions and other law­suits based on sim­i­lar al­le­ga­tions, said Larry Cash, ex­ec­u­tive vice pres­i­dent and CFO.

Com­mu­nity re­ported a de­cline of 5.6% in sec­ond-quar­ter same-fa­cil­ity ad­mis­sions com­pared with the year-ago quar­ter. Nearly half of the de­cline, rep­re­sent­ing about 2.6 per­cent­age points, was re­lated to a shift of one-day in­pa­tient ad­mis­sions into out­pa­tient vis­its. Tenet’s law­suit al­leges that Com­mu­nity ar­ti­fi­cially drives up the rate of one-day in­pa­tient ad­mis­sions through the emer­gency room to im­prop­erly boost rev­enue. About 1.6 per­cent­age points of the shift to out­pa­tient vis­its in­volved emer­gency-room cases, ac­cord­ing to Com­mu­nity. One-day ad­mis­sions for chest pain de­clined about 20% com­par­ing the quar­ters, for ex­am­ple, in what Cash de­scribed as a nat­u­ral re­ac­tion by emer­gency-room physi­cians to the pub­lic­ity sur­round­ing the law­suit and in­ves­ti­ga­tions. About 1 per­cent­age point of the de­cline in­volved di­rect ad­mis­sions that by­pass the emer­gency room.

Wayne Smith, Com­mu­nity pres­i­dent, chair­man and CEO, said the law­suit and in­ves­ti­ga­tions have been no more than a mod­est bar­rier. “As long as our de­trac­tors don’t do other kinds of things that stir up the mar­kets, I think we’re on track,” Smith said. “We be­lieve that we have a good, solid ac­qui­si­tion pipe­line. We think that we can con­tinue to ac­quire and also get our op­er­at­ing re­sults.” Com­mu­nity an­nounced the ac­qui­si­tion of a Texas hos­pi­tal last week and an­other ac­qui­si­tion in Penn­syl­va­nia the prior week.

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