Health Management first quarter net revenue increases 18.4% to $1.485B

Apr 24 2012

Health Management Associates, Inc. (NYSE: HMA) today announced its consolidated financial results for the first quarter ended March 31, 2012.    

Key metrics from continuing operations for the first quarter (all percentage changes compare the first quarter of 2012 to the first quarter of 2011) include:

• As shown in the tables accompanying this press release, excluding the impact of approximately $36.7 million, or $0.09 per diluted share, for interest rate swap accounting as well as a significant mark-to-market adjustment on the swap due to interest rate conditions, diluted earnings per share from continuing operations increased 9.1% to $0.24 as compared to $0.22 per diluted share for the same quarter a year ago. Reported diluted earnings per share are $0.15 for the first quarter ended March 31, 2012 ;
• Net revenue increased 18.4% to $1.485 billion;
• Adjusted EBITDA increased 12.7% to $239.5 million;
• Admissions increased 5.9% while adjusted admissions increased 11.8%;
• Same hospital net revenue increased 5.7% to $1.326 billion;
• Same hospital net revenue per adjusted admission increased 5.9%;
• Same hospital Adjusted EBITDA increased 6.6% to $264.0 million, resulting in a 20 basis point improvement in margin to 19.9%. Excluding approximately $4.6 million of Medicare and Medicaid Healthcare Information Technology ("HCIT") incentive payments for 2012, same hospital Adjusted EBITDA increased 4.7% to $259.4 million; and
• Same hospital surgeries increased 3.8%.

The tables accompanying this press release include reconciliations of consolidated net income to all presentations of Adjusted EBITDA (which is not a GAAP measure) contained in this press release. Those tables also reconcile earnings per share on a GAAP basis to those amounts presented in this press release and contain disclaimers and other important information regarding how Health Management defines and uses Adjusted EBITDA.

For continuing operations at hospitals operated by Health Management for one year or more, referred to as same hospital operations, net revenue in the first quarter increased $71.2 million or 5.7%, to $1.326 billion compared to the same quarter in the prior year. Adjusted EBITDA from same hospital operations grew 6.6% to $264.0 million, representing 19.9% of net revenue, as compared to $247.7 million and 19.7%, respectively, for the same quarter a year ago. Same hospital Adjusted EBITDA includes $4.6 million of Medicare and Medicaid HCIT incentive payments, offsetting government program payment reductions. Declines in both uninsured admissions and flu-related volume contributed to a 4.2% and 0.2% decline in first quarter same hospital admissions and adjusted admissions, respectively. Had uninsured and flu-related volumes been the same as last year, first quarter same hospital admissions would have declined 1.6% and same hospital adjusted admissions would have increased 2.4%.

"Health Management had another great quarter and a great start to 2012, with revenue up 18.4% year over year," said Gary D. Newsome, Health Management's President and Chief Executive Officer. "Our operating strategy continued to generate strong results in the first quarter as we managed our resources relative to the volume and acuity of our patients. We believe that there are further improvement opportunities in our hospitals as we continue to affect change in our processes and systems in emergency room operations, physician recruitment and market service development. In addition, our partnership development pipeline continues to be extremely active."

Health Management's provision for doubtful accounts, or bad debt expense, was $201.3 million, or 11.9% of net revenue before the provision for doubtful accounts, for the first quarter compared to $172.1 million, or 12.1% of net revenue before the provision of doubtful accounts, for the same quarter a year ago.

Uninsured self-pay patient discounts for the first quarter were $299.7 million, compared to $225.7 million for the same quarter a year ago. Charity/indigent care write-offs were $22.7 million for the first quarter, compared to $21.4 million for the same quarter a year ago.

The sum of uninsured discounts, charity/indigent write-offs and bad debt expense, as a percent of the sum of net revenue before the provision for doubtful accounts, uninsured discounts and charity/indigent write-offs (which Health Management refers to as its Uncompensated Patient Care Percentage) was 26.1% for the first quarter, compared to 25.0% for the first quarter a year ago, and 25.4% for the quarter ended December 31, 2011. Health Management believes that its Uncompensated Patient Care Percentage provides key information regarding the aggregate level of patient care for which it does not receive payment.

Cash flow from continuing operating activities for the first quarter was $62.1 million, after cash interest and cash tax payments aggregating $52.8 million. Our cash flows in the first quarter do not reflect the benefit of our Tennova acquisition as we had not received our Medicare tie-in notices as of March 31, 2012. Health Management received the tie-in notices in early April 2012, and we expect to bill and collect the backlog of Tennova Health accounts receivable by the end of the second quarter. Health Management's total leverage ratio was 4.1 and interest coverage ratio was 4.0 at March 31, 2012, well within its debt requirements.

Health Management hospitals recognized approximately $4.6 million of Medicare and Medicaid HCIT incentive payments in the first quarter ended March 31, 2012. As previously announced, Health Management expects to recognize approximately $90 to $120 million of Medicare and Medicaid HCIT incentive payments during the year ending December 31, 2012. The bulk of these payments are expected to be recorded in the third and fourth quarters of 2012.

Health Management is also affirming its diluted EPS from continuing operations objective range for the year ending December 31, 2012 to be between $0.80 and $0.90. This diluted EPS range for 2012 does not include approximately $96 million, or $0.24 per diluted share, of impact expected from interest rate swap accounting and mark-to-market adjustments nor does it include approximately $90 to $120 million of anticipated Medicare and Medicaid HCIT incentive payments.

As previously announced on April 2, 2012, subsidiaries of Health Management completed a joint venture transaction with respect to five INTEGRIS Health Oklahoma hospitals. Under the joint venture, which was effective April 1, 2012, Health Management now owns an 80% controlling interest in the five hospitals and manages their day-to-day operations. The INTEGRIS Health hospital partners include: 53-bed Integris Blackwell Regional Hospital, located in Blackwell; 64-bed Integris Clinton Regional Hospital, located in Clinton; 25-bed Integris Marshall County Medical Center, located in Madill; 52-bed Integris Mayes County Medical Center, located in Pryor; and 32-bed Integris Seminole Medical Center, located in Seminole. Combined, these five hospitals have an aggregate of 226 licensed beds and generated approximately $95 million of net revenue, before the provision for doubtful accounts, over the last twelve months.