Naples-based hospital operator Health Management Associates Inc. saw its stock tumble Wednesday, a day after announcing it expects to fall far short of Wall Street’s expectations for the first quarter.
One company analyst said the lower-than-expected earnings suggested a “weaker operational execution,” while several described the sizable miss as “company-specific” in research notes.
Sheryl Skolnick, with CRT Capital Group LLC, an outspoken critic of HMA, went as far as to say there was a “seeming collapse of the business model.”
“HMA’s strategic model seems to have fallen apart,” she wrote in a company note.
On Tuesday, HMA previewed its first-quarter results, saying it expects to report adjusted earnings of 12 to 13 cents a share, on net revenue of about $1.48 billion. On average, Wall Street expected earnings of 24 cents, a miss of about 10 cents.
Shares closed at $10.53 on Wednesday, down $2.06, or more than 16 percent, on the New York Stock Exchange.
HMA blamed its disappointing financial results on a number of factors, but primarily on a jump in observation-only stays, which rose more than 14 percent over last year. Observation cases longer than 48 hours spiked by more than 40 percent.
“We believe that many of our nonurban hospitals, particularly in Florida, are experiencing an increased pressure from all payers to put patients in observation status,” said Gary Newsome, HMA’s president and CEO, in a conference call Wednesday.
“The more urban markets began seeing this pressure 24 to 36 months go, as managed care payers sought out higher populations to maximize the impact more quickly.
“Over time, managed care payers have broadened their approach and they are now reaching more nonurban markets like ours, especially in the Medicare and Medicadid Advantage segments.”
Advantage plans are offered by private companies, who are encouraging fewer patient admissions. The plans offer physician incentives if they limit admissions, exaggerating the problem because it’s hard for physicians to change their practices from one patient to another based on their insurance, Newsome said.
Some analysts on the call questioned whether a critical “60 Minutes” news story aired in December may have contributed to the jump in observation stays. In the report, former employees accused the hospital chain of giving physicians quotas to admit patients as a way to boost company revenue. HMA has denied those accusations.
Observation stays were up 24 percent in the fourth quarter, following the negative broadcast.
On Wednesday’s conference call, Newsome said it was difficult to measure the impact of the scrutiny from “60 Minutes,” but that the hospitals that were highlighted were clearly affected.
Skolnick said HMA seemed to be reaching for other explanations for the higher observation trend, when it appeared obvious that the “60 Minutes” coverage has continued to have a big role in it. She has a sell rating on the stock.
HMA expects adjusted admissions to be down 5.7 percent in the first quarter, and total admissions to decline 8.8 percent over last year. Executives said the company staffed up for a seasonal increase that didn’t happen, leading to bigger costs in the first quarter.
The company also spent $19 million to $22 million in the quarter to streamline and reduce its information technology, or IT, billings and collections costs, making it more difficult to recover from lower patient volumes, Newsome said. HMA expects $90 million to $110 million in savings this year from those investments, however.
HMA owns 71 hospitals in 15 states, which includes Physicians Regional hospitals on Pine Ridge Road and Collier Boulevard in Collier County, and a hospital in Lehigh Acres in Lee County.