HMA Second Quarter Admissions Decline, Bad Debt Expense Improves

Declining admissions and surgeries held Health Management Associates (NYSE: HMA) earnings for the second quarter ended June 30, 2008 flat year over year.  The Naples, Fla.-based hospital operator reported Monday that it earned 5 cents per share on $12.4 million in net income, compared with 5 cents on $11.9 million in net income during the same quarter last year.

HMA said its income from continuing operations was $24.8 million during the quarter, or 10 cents per diluted share, missing analysts’ estimates by one cent.  HMA also missed the street’s revenue expectations of $1.13 billion when it reported net revenues of $1.1 billion in the quarter, up 3.9 percent. Admissions, meanwhile, fell 3.8 percent.

HMA said it set aside $124.8 million or 11.3 percent of net revenues for bad debt expense in the second quarter, compared with $142.7 million or 13.4 percent of net revenues during the same period a year ago. Bad debt expense during the second quarter of 2007 included $39 million in additional reserves to cover unpaid bills from treating the uninsured, HMA said.

“Although the improvement in bad debt is a relief, we think the magnitude of the volume decline may create some overhang,” said Lehman Brothers Analyst Adam Feinstein.

Feinstein said he expects the market to pull back from HMA Tuesday over concerns about the company’s volume weakness. And while he believes the quarter doesn’t suggest any major new problems for HMA, Feinstein said he continue to look for more details on the volume weakness.

In midday trading Tuesday, HMA’s shares were down 15 percent to $5.50.

HMA began offering 60 percent discounts to the uninsured for non-elective services in February 2007 and the policy has affected both uninsured discounts and charity care write offs.  In the second quarter 2008, HMA saw its charity care write-offs increase 11 percent to $20.3 million, when compared with $18.3 million a year ago. And HMA provided $149.7 million in discounts to the uninsured during the second quarter ended June 30, 2008, compared with $147.7 million for the same quarter a year ago.

HMA said its total uncompensated care, which includes bad debt, uninsured discounts and charity care write-offs, totaled 23.1 percent of net revenues in the second quarter.

HMA revised its 2008 full year revenue and earnings outlook now that it expects admissions to decrease between 1 and 3 percent.  The company said it now expects to earn between 41 cents and 47 cents in 2008 on revenues ranging between $4.4 and $4.6 billion. Previously, HMA forecast 2008 earnings of 40 cents to 50 cents per share on revenues for $4.5 billion to $4.7 billion.