HMA shares slide after Q1 preview

A disappointing preview of Health Management Associates' first quarter financial results may not bode well for the hospital industry during the next earnings season.

Shares of the Naples, Fla.-based company were trading down about 16% in the hours after a conference call this morning to lower expectations for its 2013 performance.

In a news release Tuesday, the company highlighted a challenging operating environment colored by weak inpatient volumes and increasing numbers of patients who fail to pay their bills.

The hospital chain reported that same-facility admissions for the quarter are expected to decline 8.8%, and adjusted admissions, a measure that also accounts for outpatient activity, to drop about 5.7% compared with the same period last year.

HMA, which has been under investigation for allegedly pressuring physicians to boost admissions, said it saw a 14.1% increase in observation stays compared with the first quarter of last year, and a 40% increase in observation stays lasting longer than 48 hours.

It also lowered its revenue objective for the year to a range of $6.8 billion to $7 billion, down from the $7 billion to $7.2 billion it projected in January, and increased its provision for doubtful accounts half a percentage point of 14% to 15% of net revenue as more uninsured patients filled its outpatient clinics and emergency rooms.

Gary Newsome, president and CEO, also noted that when the expected volume of patients never materialized, the system found itself paying for seasonal staffing increases for empty beds.

"In the past, we have prepared our Florida hospitals for the first quarter of the year, our seasonally busiest quarter, by adding additional staffing,” he said in the release. “However, in this year's first quarter, our historical volume levels did not materialize as increases in observation stays impacted our results. We did reduce expenses during the quarter, but contracts for seasonal nursing labor were already in place.”

HMA's first-quarter net revenue is expected to come in at about $1.48 billion, on par with last year, but adjusted earnings before interest, taxes, depreciation and amortization is expected to fall between $192 million and $196 million, a decrease from last year's $239.5 million.

Deutsche Bank downgraded the investor-owned chain along with peers Community Health Systems and Tenet Healthcare Corp., noting that despite investor optimism about higher patient volumes in 2014, the expected benefits are already factored into share prices, leaving little upside.

But Frank Morgan, an analyst at RBC Capital Markets, pointed out in a research note that HMA has faced some company-specific struggles—such as the “60 Minutes” segment that likely prompted some cautiousness about admissions and high exposure to Florida, which is shifting to a Medicaid managed-care model.

Community and Tenet were also trading down today about 4% and 5%, respectively, underperforming the broader market.