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Health Management Associates , a leading operator of general acute care hospitals, reported first quarter 2013 adjusted (excluding one-time expenses other than stock-based compensation expense) earnings per share of 13 cents matching the Zacks Consensus Estimate. Adjusted earnings in the first quarter exclude interest rate swap calculation and mark-to-market modification.

Net income at Health Management decreased 38.7% year over year to $23.1 million (or 9 cents per share).

Revenues

Revenues (prior to provisioning for doubtful clients) increased about 2.2% year over year to $1,723.8 million, missing the Zacks Consensus Estimate of $1,744 million. Net revenues dropped marginally 0.2% year over year to $1,483 million. Net revenues from same hospital decreased 1% to $1,470 million.

Operational Statistics

From a continuing operations perspective, occupancy declined to 41.5% in the reported quarter from 44.7% in the year-ago quarter. Admissions were down 7.6% while adjusted admissions dropped 4.3% in the first quarter. Average length of stay stood at 4.4 days compared with 4.3 days in the year-ago quarter. Surgeries declined 4.6%, patient days dropped 5.4%, while emergency room visits rose 3.9%.

On a same hospital basis, occupancy declined to 42.1% in the first quarter from 44.7% in the prior year quarter. Same hospital admissions and adjusted admissions dipped 8.8% and 5.8%, respectively, while surgeries and emergency room visits decreased 5.6% and increased 1%, respectively.

Margins

Same hospital adjusted EBITDA margin dropped 90 basis points to 18.9% in the first quarter. Bad debt expense, as a percentage of revenues, moved up to 14% compared to 11.9% 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 28.6% in the quarter from 26.1% 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 first quarter with cash, cash equivalents and available-for-sale securities of $37.4 million, down 36.9% year over year, with a considerable long-term debt of about $3,411 million, marginally down 0.6% year over year. The company generated cash flow (from continuing operations) of $19.3 million in the reported quarter.

Other Information

A subsidiary of Health Management undertook a joint venture to team with the Bayfront Health System of St. Petersburg, Florida. As per the deal, Health Management took 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 was 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 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 #5 (Strong Sell) on Health Management.  We are more positive about Acadia Healthcare Company, Inc. (ACHC - Snapshot Report), which carries a Zacks Rank #2 (Buy). We are also positive about Abiomed, Inc. (ABMD - Analyst Report) and Accuray Incorporated (ARAY - Analyst Report) which carry a Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy), respectively.

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