Naples-based HMA plans continued push to expand, despite '60 Minutes' report

HMA's corporate offices in Naples, Fla.

HMA's corporate offices in Naples, Fla.

Greg Kahn/Staff
Mary Tallouzi, right, a representative for the Wounded Warrior Project, is embraced by Health Management Associates' CEO Gary Newsome, center, after Tallouzi was presented a check for $25,000 at the Ritz-Carlton Golf Resort in Naples on May 22, 2012. The non-rofit organization was given the donation at a special ceremony during the annual HMA board of directors and shareholders meeting.

Photo by Greg Kahn

Greg Kahn/Staff Mary Tallouzi, right, a representative for the Wounded Warrior Project, is embraced by Health Management Associates' CEO Gary Newsome, center, after Tallouzi was presented a check for $25,000 at the Ritz-Carlton Golf Resort in Naples on May 22, 2012. The non-rofit organization was given the donation at a special ceremony during the annual HMA board of directors and shareholders meeting.

HMA’s recent partnerships and acquisitions>

April 2012: Completed a joint venture with five Integris hospitals in Oklahoma: Blackwell Regional Hospital in Blackwell; Clinton Regional Hospital in Clinton, Marshall County Medical Center in Madill, Mayes County Medical Center in Pryor, and Seminole Medical Center in Seminole.

October 2011: Acquired Mercy Health Partners, a seven-hospital system with an 80-year history in Knoxville, Tenn.

May 2011: Partnered with the physician owners of the 112-bed Tri-Lakes Medical Center in Batesville, Miss. Under the joint venture, HMA owns a 95 percent interest in Tri-Lakes and manages its day-to-day operations.

July 2010: Shands HealthCare, affiliated with the University of Florida Health Science Center, and one of the Southeast’s premier health systems, sought out HMA to create a joint venture for three of its hospitals in Central Florida.

October 2010: Acquired the two-hospital, 413-bed Wuesthoff Health System in Central Florida. Wuesthoff was saddled with significant debt and an inability to reinvest in technology.

The combined annual revenues for the Shands, Sparks and Wuesthoff hospitals alone were $650 million before HMA partnered with or acquired them.

Source: Health Management Associates Inc., www.hma.com

— "The pipeline is rich."

That's what Gary Newsome, the CEO of Naples-based Health Management Associates Inc., had to say when an analyst asked for an update on its hospital buying opportunities during the company's last earnings conference call.

Newsome's optimism came in October, several weeks before "60 Minutes" aired a segment on its investigation of the hospital operator, in which several former employees accused the company of fraud — and of pressuring doctors into admitting patients needlessly to boost revenues.

For HMA, a big strategy for growth has been acquiring and partnering with other hospitals — especially ailing, independent ones in smaller communities.

"That's what they do. Buy it, fix it, grow it," said Sheryl Skolnick, a health-care analyst and managing director with CRT Capital Group LLC.

It's unclear how — or even whether — the "60 Minutes" story may work against that aggressive strategy, which has brought the company so much success in growing its revenues over the years.

"I do think it's a risk," Skolnick said. "It depends on how long the legs are of the story, as they say, and whether there is another piece of information or another shoe to drop."

HMA officials have denied the allegations made in the TV segment, saying they were prompted by disgruntled former employees who are out for money and want to embarrass the hospital chain. The allegations have raised eyebrows, nonetheless.

At least one medical center planning a joint venture with HMA has been asking more questions of the for-profit hospital operator because of the "60 Minutes" segment, which aired Dec. 2.

A day after the TV broadcast, Steven Dupré, vice chairman of the board of trustees for the Bayfront Medical Center in downtown St. Petersburg, told the editorial board for the Tampa Bay Times: "We as a board are asking lots of questions about this, so we can assure ourselves that we aren't inviting a trickster."

As a follow-up in an op-ed article in the Tampa Bay Times, published Dec. 5, Bernadette "Bernie" Young, chairwoman of Bayfront's board of trustees, said questions linger in his community's mind about whether "continued momentum to build a partnership" with HMA is "misguided" — and that the hospital's leadership understands the unease.However, she said, the allegations in the "60 Minutes" story stand out as "an uncharacteristic anomaly," based on all the information Bayfront has collected on HMA.

"While '60 Minutes' attempts to stand as the judge and jury on these allegations in the court of public opinion, the litigation associated with these accusations is yet to be heard," Young wrote. "Health Management offers an equally compelling defense against the claims, and the data of independent third parties supports their position."

In late October, Bayfront announced HMA would acquire an 80 percent stake in the independent hospital, which is more than a century old. The deal is expected to close in March.

"Bayfront's board is working to understand the underlying allegations that were the focus of the '60 Minutes' report," said Kanika Tomalin, the hospital's vice president of strategic planning.

Months before the TV segment aired, HMA was upfront with Bayfront about the "60 Minutes" investigation, which began more than a year ago.

"As we talked to Health Management about the development of our joint venture, they were extremely transparent about the '60 Minutes' segment, fully explaining their admission procedures and compliance program," Tomalin said. "Our due diligence continues and we are moving forward with finalizing all of the steps required to build our strategic partnership."

Bernadette “Bernie” Young

Provided

Bernadette “Bernie” Young

Bayfront's board is focused on conducting a thorough review to ensure the medical center's "brightest future," she said.

"The magnitude of this decision is so significant that due diligence plays an extremely important role," Tomalin said. "That's true, regardless of these accusations or allegations."

Skolnick, with CRT, said it's appropriate for Bayfront to be a little more cautious about partnering with HMA, following the accusations in the "60 Minutes" report.

"Selling your local hospital is a very sensitive and personal issue for a lot of communities," she said.

The least bit of controversy about a buyer can make a sale much more difficult to close, Skolnick said.

Pete Lawson, HMA's executive vice president of development and a company officer, said he recently walked Bayfront's representatives through his company's website to show them how HMA has dealt publicly with the CBS news show's story. The information it has put online includes detailed, independent data showing its admissions aren't unusual when compared to its competitors.

"They are charged to make the very best decision on behalf of the hospital, the community, the medical staff and the city," Lawson said of Bayfront's board. "We expect them to want to ask for more information."

“60 Minutes”

“60 Minutes”

HMA is confident it will close the deal with Bayfront, he said.

When it comes to joint ventures and acquisitions, Lawson said: "It's a long process and it's multifaceted and never any one element makes or breaks the decision."

HMA, he said, still feels confident about its merger and acquisition activity. In fact, he said, the company learned just a few days ago it was chosen as the buyer for what will be an out-of-state acquisition. That pending deal won't be announced publicly for a few weeks, Lawson said.

"Our history, our culture, our experience over the past 35 years is the reason why a hospital organization will pick us," he said. "That doesn't go away with the '60 Minutes' story. It's not a refection of that."

The company now has 70 hospitals in 15 states, including two Physicians Regional medical centers in Collier County and a hospital in Lehigh Acres in Lee County.

Florida Health Management Associates President Alan Levine on NewsMakers 12-16-12.

Florida Health Management Associates President Alan Levine on NewsMakers 12-16-12.

Alan Levine, president of HMA's Florida Group, said the story by "60 Minutes" is more than offset by all the positive headlines of late, such as the company's recent announcement that its Physicians Regional Healthcare System has been designated a comprehensive stroke center — the only one in the region and one of 18 statewide.

Other recent good news includes the Joint Commission recognizing 65 percent of HMA's hospitals as top performers and Fortune Magazine naming HMA as one of the most-admired health-care companies.

"Those stories speak pretty loudly because they are objective measures," Levine said. "They are not news organizations trying to develop their viewership. No one has ever accused the Joint Commission of being subjective."

During HMA's third-quarter conference call in October, Newsome, HMA's CEO, told analysts the most exciting opportunities for the company are the acquisition and partnership opportunities ahead.

In a weak economy and with industry uncertainty, he said other hospitals are seeking partners like HMA, "who in these uncertain times can provide access to capital, meaningful use compliant systems and effective operating expertise."

Going forward, HMA could find itself buying the more troubled hospitals because their sellers might be more willing to overlook the allegations, CRT analyst Skolnick said.

The for-profit HMA is the fourth-largest hospital chain in the nation with 70 hospitals, including the two Physicians Regional Medical Centers in Collier County and one in Lehigh Acres in Lee County.

Deals could drag out and get more expensive for HMA, which may have to pay more for hospital assets to smooth concerns stemming from the "60 Minutes" story, she said.

After a wave of business scandals in the 1990s and early 2000s, Tenet Healthcare Corp. — an HMA competitor — struggled to put the past behind it. In late 2002, Tenet's aggressive pricing prompted government investigations and triggered lawsuits. The company also drew national headlines and landed on "60 Minutes" after doctors at one of its California hospitals were accused of performing unnecessary heart surgeries.

"There are long memories in the health-care system," Skolnick said. "Even any unproven allegations can work against you."

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