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Health Management Associates , a leading operator of general acute care hospitals, reported fourth quarter and 2012 adjusted (excluding one-time expenses other than stock-based compensation expense) earnings per share of 19 cents and 75 cents, respectively, missing the corresponding Zacks Consensus Estimates of 20 cents and 83 cents. Adjusted earnings in the fourth quarter exclude payments for Medicare and Medicaid Healthcare Information Technology, interest rate swap amortization and mark-to-market modification.

Net income at Health Management increased 56.5% year over year to $48.3 million (or 19 cents per share).

Revenues

Revenues (prior to provisioning for doubtful clients) increased about 8.3% year over year to $1,715.5 million, easily surpassing the Zacks Consensus Estimate of $1,686 million. Net revenues improved 6.6% year over year to 1,480.9 million. Net revenues from same hospital increased 5.1% to $1,458.9 million.

For 2012, revenues climbed 16.3% to $6,752.7 million beating the Zacks Consensus Estimate of $6,728 million.

Operational Statistics

From a continuing operations perspective, occupancy declined to 38.4% in the reported quarter from 40.2% in the year-ago quarter. Admissions were down 3.6% while adjusted admissions rose 1.4% in the fourth quarter. Average length of stay stood at 4.2 days compared with 4.1 days in the year-ago quarter. Surgeries climbed 2%, patient days dropped 1.9%, while emergency room visits rose 12.2%.

On a same hospital basis, occupancy declined to 38.9% in the fourth quarter from 40.2% in the prior year quarter. Same hospital admissions and adjusted admissions also dipped 4.7% and 0.1%, respectively, while surgeries and emergency room visits increased 0.9% and 9.2%, respectively.

Margins

Same hospital adjusted EBITDA margin increased 230 basis points to 18.7% in the fourth quarter. Bad debt expense, as a percentage of revenues, moved up to 13.7% compared to 12.3% in the year-ago period.

The total of uninsured discounts, indigent/charity write-offs and bad debt expense as a percentage of the sum of net sales before provisioning, uninsured discounts and indigent/charity write-offs rose to 28.7% in the quarter from 25.4% a year ago. This metric indicates the aggregate extent of patient care for which Health Management is not reimbursed. 

Balance Sheet and Cash Flow

Health Management exited the fourth quarter with cash, cash equivalents and available-for-sale securities of $180.3 million, down 3.3% year over year, with a considerable long-term debt of about $3,463.1 million, up 6.1% year over year. The company generated cash flow (from continuing operations) of $139.2 million in the reported quarter.

Other Information

A subsidiary of Health Management undertook a definitive agreement to team with the Bayfront Health System of St. Petersburg, Florida. As per the deal, Health Management will take an 80% stake in Bayfront Health System besides an affiliation with ShandsHealthCare (belonging to UF & Shands, the Univ. of Florida, Academic Health Care). The total consideration for the 80% stake is about $162 million. 

Outlook

Health Management is engaged in the ownership and operation of general acute care hospitals in non-urban communities across the U.S. The company 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).

Health Management benefits from a gradual growth in admissions largely due to improvements in Emergency Room, sustained physician recruitment and service development. Moreover, it is well placed to expand margins from continuing operations and drive above-industry average earnings growth. The debt burden for the company remains sizeable.

We currently have a Zacks Rank #3 (Hold) on Health Management.  We are more positive about other stocks such as Acadia Healthcare Company, Inc. (ACHC - Snapshot Report), which carries a Zacks Rank #1 (Strong Buy).
 

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