| July 19
July 19 A warning from hospital operator
Community Health Systems Inc of declining patient
admissions and news that the U.S. government is stepping up a
probe of how it handles Medicare patients will complicate
efforts to buy rival Health Management Associates Inc,
analysts said on Friday.
They said a resulting 9 percent price drop in Community
Health's shares together with lower earnings have significantly
raised the cost of financing a deal.
"This makes a deal much, much more difficult to do from a
leverage perspective," said CRT Capital Group analyst Sheryl
Skolnick. "It makes it a lot harder to finance and a lot harder
to convince shareholders that it is a good thing."
Community Health said late Thursday that its second quarter
profit would fall from a year earlier due to weak admissions
volumes in May and June, bad debts, and deteriorating
The Franklin, Tennessee, company also said the Department of
Justice had subpoenaed more of its employees in a wider
investigation into admissions of patients covered by Medicare,
the government's health plan for the elderly.
"Based on what I understand them to say, this situation is
not going to be resolved anytime soon," Skolnick said.
Analysts at Oppenheimer now estimate that the hospital chain
will earn 51 cents a share for the quarter, well below the
consensus Wall Street estimate of 92 cents a share.
"This makes a deal for HMA more difficult," said one
industry banker, who asked not to be identified because he is
not authorized to speak to the media. "This might make it
Representatives of Community Health and Health Management
did not immediately respond to requests for comment.
Health Management, based in Naples, Florida, has been
seeking to fend off a campaign from hedge fund Glenview Capital
Management, which has threatened to launch a proxy battle
against the company. Glenview owns a 14.6 percent stake in the
Health Management said in June that it had hired Morgan
Stanley and law firm Weil, Gotshal & Manges to consider
Earlier this month, several sources familiar with the matter
said that Community Health was a likely buyer, while hospital
chains including HCA Holdings Inc and LifePoint
Hospitals Inc were also exploring a potential deal.
In early afternoon trading on Friday, shares of Community
Health were trading down 9 percent at $43.08, while shares of
Health Management were down 4 percent at $15.70. Shares of
LifePoint were down 3.7 percent at $49.46 and shares of HCA had
fallen about half of a percentage point to $38.99.
"Volume headwinds have kept us cautious on the group, and we
believe medical demand will remain below expectation through the
balance of the year," BMO Capital Markets analyst Jennifer Lynch
said in a note to investors on Friday.
Since President Barack Obama's healthcare reform legislation
was passed in 2010, there has been a wave of consolidation -
more than 650 deals for hospitals, according to Thomson Reuters
data - as companies in the sector seek to protect themselves
against increasing costs and lower reimbursement fees from the