Medicare Settlement Sparks Rally in Hospital Stocks

Thursday, 12 Apr 2012 04:48 PM

 

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HCA Holdings Inc. and Tenet Healthcare Corp. led hospital stocks higher Thursday after the companies said a settlement of a 13-year-old lawsuit over Medicare payments would boost revenue and HCA reported higher admissions.

HCA, the biggest for-profit hospital chain, climbed 3.1 percent to $27.57 at the close of trading in New York, while Tenet, No. 3 in the industry, rose 5.3 percent to $5.35, after Thursday’s announcements. Community Health Systems Inc., the No. 2 hospital chain, gained 4.7 percent to $22.39, for its biggest one-day advance in seven weeks.

HCA and Tenet will benefit from an industrywide settlement over what the chains said were underpayments from Medicare, the U.S.-backed insurance program for the elderly and disabled, the companies said in separate statements. HCA, based in Nashville, Tennessee, also said same-facility admissions rose 3.2 percent in the first quarter, suggesting the economic recovery in the U.S. may finally help hospitals.

“Since the beginning of the year, there’s been speculation: Is utilization coming back or not?” said Arthur Henderson, a Jefferies & Co. analyst in Nashville, in a telephone interview. “What HCA has done is basically given investors some comfort, and that’s sparked strength in all of these companies.”

Settlement Proceeds

HCA said the lawsuit settlement signed April 5 will lead to a net revenue gain of $188 million while Tenet said it expects net cash proceeds of $84 million. While gains were reduced by a separate change in reimbursements announced by Medicare last month, the proceeds beat projections the companies had made before reaching the pact, they said.

“Thousands of hospitals across the U.S. will benefit” from the settlement, said Sheryl Skolnick, a CRT Capital Markets analyst, in a note to clients. “As one of the largest, HCA reaps the biggest benefit.”

HCA said preliminary adjusted earnings before interest, taxes, depreciation and amortization were about $1.8 billion to $1.85 billion in the first-quarter. The results compare with $1.59 billion a year earlier, the company said in its statement. HCA said it would release final results about May 3.

Revenue was $8.38 billion to $8.43 billion, compared with $7.41 billion a year earlier. That trailed the $8.58 billion average of 19 analyst estimates compiled by Bloomberg.

Tenet said $77 million of its settlement portion relates to current facilities and the rest to those it no longer operates. The Dallas-based company anticipated $25 million to $50 million in higher proceeds when it raised its earnings guidance in February, Tenet said in its statement. The company said it intends to update its 2012 forecast for adjusted profit as part of an earnings statement on May 8.

Community Health, based in Franklin, Tennessee, will discuss the settlement’s impact when it announces quarterly earnings on April 26, Lizbeth Schuler, the company’s vice- president for investor relations, said in a telephone interview.

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