What's more contagious than the flu? Enthusiasm for investing in publicly traded hospital companies, if January was any indication.
What a difference a year makes. In the first month of 2000, analysts touted as a great value investment the same hospital company stocks that were at the bottom of investors' lists a year ago. Last year was marked by legislative uncertainty, market pressure and simple financial turmoil in the industry, but this year the market outlook seems more stable, investors seem more confident, and hospital companies are increasingly profitable. At least for now.
"Twelve months ago, we had a cautious stance toward (hospital companies), and now we have a bullish stance toward the group," says Andrew Bhak, vice president of equity research at Morgan Stanley Dean Witter in New York.
During January at least one of the equity research firms that follow the industry upgraded all but two of the publicly traded hospital companies. The exceptions-Nashville-based New American Healthcare Corp., which was recently delisted, and Houston-based Paracelsus Healthcare Corp.-have had operational and cash-flow problems. In most cases the analysts following the companies recommended the hospital stocks as a good buy.
When a recent sell-off of 12.1 million shares pulled Columbia/HCA Healthcare Corp.'s stock price down a little, for example, Bhak raised his ratings on the company to "strong buy" based on the conviction that Columbia's continuing strong operations at its core hospitals would reward a purchase at a slightly depressed price. Even so, Columbia's stock has been trading at $28 to $30 per share, a significant improvement over its 52-week low of $17.25.
Bhak is not alone in his enthusiasm.
A.J. Rice, first vice president at Merrill Lynch & Co., noted in a Jan. 10 written comment on publicly traded hospitals that in early January, hospital stocks rose 23%, following an average increase of 24% in the fourth quarter of 1999. The early January performance put hospital stocks ahead of the broader market.
Congress' passage last November of an $18.1 billion package to relieve the effects of the Balanced Budget Act of 1997 may have had a psychological impact on investors, contributing to the dramatic change in fortune, Rice says. That might help explain why hospital stocks began to take off after bottoming out last October. Another favorable omen for 2000 is that in an election year, major politically charged legislative changes are unlikely.
Providers also say they have negotiated more-favorable pricing from managed-care companies in recent months than in the past several years, which could also enhance earnings.
Finally, there is the seasonal impact, which can be summed up in one word: flu.
The flu season is to hospital companies what the Christmas season is to retailers.
Every year those in and around the hospital industry eagerly anticipate, monitor and analyze it. Hospitals across the country get a surge of additional business from the flu every fall or winter. Hospital companies factor into their prognoses when the flu will arrive, how long it will last and how severe it will be.
This year the flu has garnered attention reaching epic proportions, as emergency rooms reportedly swelled with flu sufferers and media across the country picked up on the theme.
But is this year worse than any other year?
Unclear, say the experts.
Will hospitals reap economic benefits from the many and much-publicized visits to the ER? That's also unclear, although hospital industry analysts are already banking on the flu's promise to enhance revenue.
During the past two months, the amount of flu-related activity, the number of patients seeking treatment for flu-like illness and the number and types of viruses have been comparable to those characteristics in the past two seasons, according to data from the Centers for Disease Control and Prevention.
In fact the media may have exaggerated the severity of the flu season, says K.D. Hoskins, a spokeswoman for the CDC in Atlanta.
"I think a lot of it may be media attention to the flu and promotion of flu drugs," she says.
However, according to CDC data, more pneumonia and flu-related deaths have been reported this year than in the past two seasons, and the season seems to have peaked earlier than last year's mid-February pinnacle, Hoskins says.
Providers say the flu's impact is real, and they are feeling it in the trenches.
"It is not hype," says William Schoen, chairman and chief executive officer of Health Management Associates, a Naples, Fla.-based for-profit hospital chain. "The flu season is here, and it started in December."
Schoen says this year's flu has blossomed into more-serious ailments too.
"We definitely are noticing the activity in the emergency rooms," he says, "which in many cases, depending on the age of the patient, has really turned into upper-respiratory problems."
Harry Anderson, a spokesman for Santa Barbara, Calif.-based Tenet Healthcare Corp., says his company has seen the greatest effects of the flu in Southern California, Philadelphia and parts of Texas.
"It is clear to us that this is a much more significant flu season than last year or any of the more recent years," he says.
But though the winter months are generally a hospital's busiest time, it is difficult to say how much this year's flu season will affect providers' bottom lines.
"It's too soon to tell," Anderson says. "At this point we're just taking care of the patients."