After reporting a staggering $80 million loss in its first quarter as a publicly traded company, executives at Paracelsus Healthcare Corp. are evaluating nearly one-third of their hospitals for possible sale, swap or closure.
The Houston-based owner and operator of 31 hospitals in 11 states acknowledged last month it would post a large loss but didn't disclose how much until its official earnings statement last week. Within days of last month's announcement, Paracelsus was blitzed with shareholder lawsuits in state and federal courts in California and Texas, which charged that the company didn't disclose its true financial condition prior to its August merger with Champion Healthcare Corp. (Oct. 21, p. 10).
"I want to reassure our stockholders and other constituents that we continue dedicating our efforts to achieving the objectives contemplated at the time of the merger," said Charles R. Miller, Paracelsus' president and chief operating officer. "I am prepared to take whatever actions are necessary to expedite those efforts."
Paracelsus' immediate action will be to exit the Los Angeles market, where the company owns five acute-care and three psychiatric hospitals. The company said it may close, sell or swap all eight Los Angeles hospitals and two other psychiatric hospitals in Louisiana and Missouri. "There are 10 hospitals in play," said Deborah Frankovich, vice president and treasurer of Paracelsus.
Paracelsus reported a net loss of $80.1 million, or $1.89 per share, for its third quarter ended Sept. 30. That compares with net income of $3.3 million, or 11 cents per share, in the year-ago quarter. Revenues dropped 1% to $109.9 million.
The company's quarterly earnings reflect a total of $128.3 million in charges and losses. The results reflect $46.8 million in costs related to the merger; $17.6 million in adjustments from closure costs and restated estimates from government programs; a $42.9 million loss from the anticipated divestiture of all the company's psychiatric hospitals; a $13.3 million "impairment charge" related to a decision to divest certain acute-care hospitals in Los Angeles; and a loss to extinguish $7.7 million in debt related to the merger transaction and establishment of a new credit facility.
The poor earnings caused Standard & Poor's Corp. to change Paracelsus' credit outlook to negative from stable.
With $700 million in annual revenues, Paracelsus became the nation's sixth-largest investor-owned company at the time of the merger.
Meanwhile, Paracelsus executives said they are unable to predict when an internal investigation into the company's financial irregularities and earnings shortfall would be completed. The company hired the national accounting firm Price Waterhouse and Washington law firm Wilmer, Cutler & Pickering to examine the problems (Oct. 14, p. 17).
"A senior operating and financial executive has been assigned to directly oversee the Los Angeles metropolitan area hospitals, with responsibility for reducing expenses and improving cash flow of these hospitals while they are still being operated by the company," Miller said.
For the nine months, the company lost $86.9 million, or $2.56 per share, compared with net income of $10.5 million, or 35 cents per share, in the year-ago period. Revenues rose 5% to $350.2 million.