Columbia/HCA Healthcare Corp. met Wall Street's earnings projections last week as company executives continued to cite growth and ease investor fears about acquiring a regional insurance company.
The 347-hospital chain reported a 16% increase in profits and said its executives were in discussions with 135 hospitals about joint ventures or acquisitions.
The Nashville, Tenn.-based company reported net income of $416 million, or 92 cents per share, compared with $358 million, or 80 cents per share, in the year-ago period. Revenues grew 13% to $4.9 billion.
During a conference call with stock analysts, Victor Campbell, Columbia's senior vice president of investor relations, said he had spent 90% of his time in the past few weeks answering questions about Columbia's deal with Blue Cross and Blue Shield of Ohio. Columbia has agreed to buy most of the operations of the state's largest insurer for $299.5 million (April 8, p. 32).
"There are still people who are very nervous about it, but it just makes sense. HMOs are taking far too much of the healthcare dollar," said Jeff Villwock, healthcare analyst for Johnson Rice & Co., a New Orleans-based investment bank, about the deal. He noted that the apprehension has hurt the company's stock price.
The day after the earnings announcement, Columbia's stock rose 25 cents per share to $51.13. However, that's down from a 52-week high of $58.63.
"We were concerned that it would alienate HMOs," said John Runningen, healthcare analyst for Robinson-Humphrey Co., an Atlanta-based investment bank. However, Runningen said he has reversed his opinion about the Blues deal. "After talking with the management of several HMOs, we do not believe this is the case."
Salomon Brothers, a New York-based investment bank, continued to rate the stock a "strong buy" last week, noting management's strategy to become "an ever more comprehensive and integrated healthcare company as compared to a hospital company."
Merrill Lynch & Co. analysts noted "increasing skepticism" about Columbia stock, saying the "sustainability" of its strong earnings growth has been called into question. But the analysts said their outlook for the industry as a whole remains bullish and their earnings projections for the company could be exceeded.
In announcing the first-quarter results, Richard Scott, Columbia's chairman, president and chief executive officer, talked about the company's pervasive reach in treating more than 9 million people during that period.
"We believe that Columbia's success is the result of our continued focus on meeting or exceeding customer expectations in every facet of our daily activities," he said.
Since January, the company has acquired 18 hospitals through acquisitions, joint ventures or swaps. In addition, it has closed three and divested three (See chart).
Of the acquisitions, all but one had been previously announced. In Anchorage, Alaska, the company purchased 34-bed North Star Hospital from Sterling Healthcare Corp., a chain of 15 psychiatric hospitals based in Bellevue, Wash. The psychiatric hospital is less than a mile from another Columbia-owned facility, Columbia Alaska Regional Hospital. Terms were not disclosed.
Although the company announced that it had closed four hospitals and three surgery centers, one of the hospitals subsequently reported that it hadn't closed after all.
"We're still kicking," said Irma Rocha, spokeswoman for El Campo (Texas) Memorial Hospital.
The hospital, which is owned by a hospital district, had been leased to Hospital Corporation of America since December 1992. HCA was merged into Columbia in 1994.
Rocha said Columbia was consolidating El Campo's operations into another Columbia hospital in Wharton, Texas, about 13 miles away. For example, the business office, purchasing and home healthcare services were all moved to Wharton, she said.
Columbia officials wanted to close the hospital itself, but El Campo residents objected, so the hospital district took over operations in February. Located between Houston and San Antonio, El Campo is a city of 12,000 residents.
Columbia's philosophy to consolidate operations is designed to boost efficiencies at individual hospitals. Columbia officials reported that at hospitals it had operated for a year or more, admissions increased 3% in the first quarter. However, that was down from 4.5% in the previous quarter and 3.2% in the third quarter of 1995.
Villwock noted that 3% may be the best that can be expected in today's environment and that admissions growth of 4.5% was "not sustainable."
On a related note, Standard & Poor's Corp. raised its rating on Columbia's senior debt to A- from BBB+ and on the subordinated debt to BBB+ from BBB. The ratings affect about $5 billion in debt.
Standard & Poor's said the ratings reflected the company's "success in rapidly expanding operations" and an "enlarged capacity to fund its growth."
The New York-based rating service also noted that Columbia's operating margins of more than 21% were among the highest in the industry. However, it cited concerns about "management actions to maximize shareholder value beyond the rapid growth phase."