Health Management Associates ( HMA - Analyst Report ) , a leading operator of general acute care hospitals, recently reported that it has accomplished the takeover of the assets of Mercy Health Partners, which is a subsidiary of Catholic Health Partners.

Consequently, Health Management has either taken over or leased all seven hospital facilities of Mercy Health Partners comprising 1,323 beds and other services inherent to the East Tennessee health care system. The deal went into effect on October 1, 2011. Also, as of this date, Health Management changed the name of the erstwhile Mercy System to “Tennova Healthcare”.

Health Management runs hospitals in select non-urban markets spread throughout the U.S. The company continues to emphasize its three long-standing initiatives, namely Emergency Room operations, physician recruitment and market development, which have facilitated admissions.

We are slightly relieved that bad debt may not be an area of looming concern. Overall, total uncompensated care (the sum of uninsured discounts, charity/indigent write-offs, and bad debt expense as a percentage of adjusted revenue) was on the higher side in the second quarter of 2011. The lingering level of uninsured admissions also remains a cause of concern.

Delayed care continues to raise acuity in a weak economy. In this regard, Health Management’s specialty recruitment and its market/service development are expected to drive acuity over the medium term as group hospitals become more adept at handling higher acuity patients. Also, Health Management’s deployment of modern surgical systems in its hospitals should continue to grow its surgical market share.

On the negative side, we are concerned about soft hospital industry volume trends and the company’s ability to quickly absorb hospitals. Sizeable debt remains on the balance sheet. The company’s contracts with commercial managed care organizations partially mitigate its exposure to government programs, Medicare/Medicaid.

Health Management has indicated its continued willingness to deploy free cash flow for acquisitions. It is an active acquirer of underperforming hospitals with a turnaround potential in high-growth markets. Health Management’s competitors, in niche markets, include Community Health Systems ( CYH - Snapshot Report ) and LifepointHospitals ( LPNT - Snapshot Report ) .