HCA looks for hospitals to buy, posts higher first-quarter profit

Monday, April 23, 2001 | 11:12 a.m.

SUN STAFF AND WIRE REPORTS

NASHVILLE, Tenn. -- First-quarter earnings at HCA -- The Healthcare Co. rose 10 percent, helped by strong hospital volume and higher prices for medical care services.

In Las Vegas, HCA owns Sunrise and MountainView hospitals. HCA, the nation's largest for-profit hospital chain, today said it earned $326 million, or 59 cents per share, compared to $296 million, or 52 cents per share, for the same period a year ago.

Excluding one-time gains and losses, HCA earned 60 cents per share, beating by one penny the earnings expectations of Wall Street analysts surveyed by Thomson Financial/First Call.

Revenues for the quarter were $4.50 billion, up 5 percent from $4.27 billion in the first quarter of 2000.

"This was another outstanding quarter for the company," said company President and Chief Executive Jack O. Bovender Jr. "Our same-facility hospital volumes were strong, as was our revenue per admission, resulting in excellent same facility net revenue growth."

In early trading on the New York Stock Exchange, HCA shares rose 15 cents to $38.28.

During the first quarter, HCA sold two hospitals and one ambulatory surgery center, leaving it with a total 194 hospitals and 77 surgery centers.

HCA raised prices 6 percent to 8 percent for health insurers after investing in new facilities to build market share in places such as Las Vegas, south Florida and Richmond, Va. HCA and its competitors also are treating more patients as the U.S. population ages and insurers relax restrictions on care.

"They've invested in cardiology, orthopedic services and especially new emergency rooms. That's the front door of the hospital," Merrill Lynch & Co. analyst Albert Rice, who has a "near-term buy" on the shares, said before earnings were released.

HCA was expected to earn 59 cents a share, the average estimate of analysts surveyed by First Call/Thomson Financial.

HCA said patient admissions rose 2.3 percent in the quarter for hospitals it owned at least a year. Revenue per admission rose 6.9 percent, reflecting price increases the company negotiated with insurers.

The company said costs for labor and supplies rose as a percentage of revenue. Labor costs rose to 39.6 percent of revenue from 38.9 percent a year earlier. Supply costs rose to 15.8 percent of revenue from 15.7 percent.

HCA said investments in its hospitals are paying off. The company expects to spend $1.2 billion on capital projects this year.

"They're taking market share from undercapitalized nonprofit hospitals," said Matthew Ripperger, a UBS Warburg analyst with a "buy" rating on HCA.

Admissions rose 11.6 percent, and emergency room visits rose 16.8 percent at five replacement hospitals HCA built in Texas, Tennessee and Florida, the company told investors at a Merrill Lynch & Co. conference April 12.

HCA joins Tenet Healthcare Corp. and Universal Health Services Inc. in reporting higher quarterly profit. Universal, the third-largest hospital company with three Las Vegas-area hospitals, said last week its profit rose 26 percent. No. 2 Tenet, with one hospital in North Las Vegas, said its fiscal third-quarter profit rose 30 percent.

Hospital companies are charging insurers more for treating patients and are getting bigger reimbursements from Medicare, the government health-insurance program for the elderly and disabled. Hospitals got another Medicare funding boost April 1 under a $35 billion budget package Congress passed last year.

Like Tenet and Universal, HCA is looking for hospitals to acquire, Rice said. HCA managers are scheduled to meet soon to discuss which hospitals they may buy, Rice said.

"They're looking for acquisitions, but their growth isn't dependent on it as it is with the rural providers," he said. "The focus is the low-risk project that can add to your market share."

HCA wants to buy hospitals in markets it's already in and integrate them into regional centers that do back-office functions such as debt collection, said Rice. HCA also is setting up regional supply warehouses to cut inventory costs.

HCA's results are the first the company has reported since it announced the largest governmental fraud settlement in history, paying more than $840 million in criminal fines and civil penalties.

December's settlement, in part, grew out of charges that the hospital chain for years inflated the seriousness of pneumonia diagnoses to increase payments from government health care programs.

The rest of the case related to charges of cost report fraud, fraudulent Medicare billing for people working at home health agencies and wound care centers, paying kickbacks in the sale of home health agencies and fraudulent billing of Medicare for fees paid to manage those agencies.

Bovender said any settlement of two remaining civil fraud allegations or any cost of the company litigating the case must fall within a "reasonable range" the company has identified. He didn't say what the range was.

"Obviously, we would like to resolve it. We would like to negotiate a settlement with the government," Bovender said in a conference call with investors and analysts. The Justice Department last month filed court documents alleging HCA had overbilled Medicare and other health-insurance programs by almost $650 million by filing false annual cost reports and giving doctors kickbacks for referring patients. Those claims weren't resolved in the December settlement.