Rising costs and declining admissions resulted in a less-than-stellar 1998 earnings report last week from Columbia/HCA Healthcare Corp., Nashville.
It was one of several developments for the company last week: Standard & Poor's downgraded Columbia's credit and debt ratings to junk bond status; the company announced the second stock buyback plan in less than seven months; and a special federal judicial panel denied the government's request to consolidate at least six pending whistleblower civil fraud lawsuits against the company.
"You've got a business being hit from all sides by things the company cannot control, and the weapons in the arsenal are very limited," said Sheryl Skolnick, a healthcare analyst with BancBoston Robertson Stephens in New York.
"Obviously we're not where we want to be," said Jeff Prescott, a company spokesman. "Earnings were not as good throughout this entire year as we had hoped they'd be."
In its earnings statement, the company blamed its financial woes on reduced Medicare reimbursements, higher costs of new technology and pharmaceuticals, and declining patient volumes.
Columbia turned a $379 million profit last year, or 59 cents per share, compared with a net loss of $305 million, or 46 cents per share, in 1997. However, $365 million, or 96%, of last year's profit came from the sale of hospitals.
Revenues for the year ended Dec. 31, 1998, were about $18.7 billion, down slightly from 1997's $18.8 billion.
Columbia owned 309 hospitals at the end of 1997, but the number shrank to 281 by the end of 1998. Twenty-one of those hospitals were sold to a consortium of not-for-profit buyers last year. The rest were closed or sold.
For the fourth quarter ended Dec. 31, 1998, the company reported a net loss of $42 million, or 6 cents per share, compared with a net loss of $1.2 billion, or $1.92 per share, in the year-ago quarter.
Columbia also announced a second $1 billion stock buyback program to be completed in April. The first repurchase of 44 million shares was announced last July and completed earlier this year.
To assure the federal government that the new stock repurchase program would not jeopardize the company's ability to settle the pending civil fraud lawsuits, Columbia agreed to supply letters of credit totaling $1 billion, which guarantees that the company could line up that amount of money if necessary for a settlement.
The possibility of settling the pending whistleblower lawsuits was dealt a setback last week when a judicial panel denied the U.S. Justice Department's motion to consolidate six unsealed cases against Columbia and other cases.
The unsealed cases allege that Columbia defrauded Medicare and other government health programs by submitting false claims for services, said Chris Watney, a Justice Department spokeswoman. The order opens the door for the Justice Department to file a new motion.
"At this point, we're just trying to determine whether we will file again," Watney said. "I think it's a little premature to say how this will affect settlement negotiations."
On the same day the earnings report was released, Standard & Poor's lowered Columbia's rating to speculative grade, reflecting concern about the company's financial strategies and weakened operating results.
The company may be able to generate a strong cash flow, but how those funds would be used remains a question, said Elie Radinsky, a ratings director at Standard & Poor's.
"To have the second share repurchase program so close to the first one is an effort to boost shareholders' interest at the expense of bondholders," he said.