Select Medical Holdings overcame an earnings wobble in its specialty hospital division to post solid second-quarter gains in revenue and profit on the strength of rising outpatient volumes, the company announced (PDF) Friday.
In the quarter, Mechanicsburg, Pa.-based Select Medical posted a 19% increase in income from operations to $101.1 million from $85 million in the year-earlier quarter.
Revenue in the second quarter spiked 24% over the prior year to $1.1 billion from $887.1 million. Both earnings and revenue were boosted by acquisitions, most notably Concentra last summer and Physiotherapy Associates in January.
Select Medical absorbed a 1% decline in revenue in its specialty hospital division as the company continues a transition at its 105 long-term acute-care hospitals to take sicker patients under Medicare's new reimbursement rules.
During an earnings call with analysts Friday, CEO Bob Ortenzio said 72 of those hospitals are only taking the most-acute or “criteria” patients under the new rules. The transition is resulting in higher revenue per admission, he said. But Select Medical is still working with tertiary hospitals in its markets to ensure they are getting the right patients for long-term, acute care, he said.
The 105 hospitals is five fewer than a year ago as the company has closed a handful. As of June 30, Select Medical had 18 rehabilitation hospitals, one more than a year ago.
The changes in the division have dented earnings. Adjusted EBITDA in the second quarter fell about 10% in the second quarter to $82.7 million from $91.5 million in the year-earlier quarter. The adjusted EBITDA margin in the second quarter dipped to 14.1% from 15.4%.
Select Medical's performance in outpatient rehabilitation was a different story. With 1,600 clinics today compared to 1,028 a year ago, the company logged 2.1 million outpatient rehab visits in the second quarter vs. 1.3 million in the year-earlier period.
That resulted in revenue jumping 24% to $207.8 million and a 33% increase in adjusted EBITDA to $38.1 million from $28.7 in the year-ago period.
Concentra, which Select Medical bought last year for $1 billion with private-equity group Welsh, Carson, Anderson & Stowe, contributed adjusted EBITDA in the quarter of $43 million vs. $11.2 million in the year-earlier period.
