Ongoing restructurings have resulted in less than favorable earnings reports from the country's two largest for-profit hospital chains.
With 309 hospitals, Columbia/HCA Healthcare Corp., the nation's largest healthcare chain, last week reported an 81% decrease in net income for the second quarter ended June 30 to $78 million, or 12 cents per share, compared with net income of $412 million, or 62 cents per share, in the year-ago quarter. The Nashville-based company said revenues dropped 1% to $4.8 billion.
Santa Barbara, Calif.-based Tenet Healthcare Corp., the nation's second-largest chain with 122 hospitals, last week reported a loss of $141 million, or 46 cents per share, for its fourth quarter ended May 31, compared with a loss of $340 million, or $1.10 per share, in the year-ago quarter. Revenues were up 9% to $2.6 billion.
For the year, Tenet turned a $261 million profit, or 84 cents per share, compared with a loss of $254 million, or 84 cents per share, in the year-ago period. Revenues rose 14% to $9.9 billion.
"Both companies have solid businesses," said Peter Emch, healthcare analyst with BT Alex. Brown in Baltimore. "The question is how fast can they grow?"
Both companies took financial hits from restructuring in their respective quarters.
For example, Columbia took an $18 million charge resulting from legal costs related to the federal government's ongoing investigation of the company's billing practices. It also took a $22 million charge from operations of discontinued businesses, such as ValueHealth and its home health business, and a $73 million loss from its ValueRx and Value Behavioral Health sales.
Tenet took a $221 million charge before taxes for costs related to the planned closures of certain hospitals and home health agencies.
For the year, Tenet incurred $740 million in expenses for merger, facility consolidation and other ancillary charges.
Both companies also blamed lower-than-budgeted Medicare revenues for their financial problems. Columbia wrote off $55 million, while Tenet is projecting a $100 million charge for fiscal 1999.
Columbia Senior Vice President Victor Campbell said he would not predict Columbia's future but stressed that the company has made significant strides in turning itself around.
As part of its restructuring, Columbia plans to sell $2.7 billion of its assets, including 37 hospitals and 35 surgery centers. The company also said it plans to file in August for Internal Revenue Service approval for a tax-free spinoff of 65 hospitals into two companies called the America and Pacific groups. Campbell said the company hopes to hear from the IRS by late this year or early next and effectively spin off the companies in the first half of 1999.
Also last week, Columbia's board approved a $1 billion stock repurchase plan, representing about 5% of its market capitalization.This is the second stock buyback plan Columbia has announced in 15 months. The first $1 billion stock buyback was announced in April 1997.