Community Health Systems (CYH), Health Management Associates Inc (HMA): Is This the Last Tie-Up in the Hospital Sector?

In its latest fiscal year, Select Medical reported continued growth in its financial results, with increases in revenue and adjusted operating income of 5.2% and 5.1%, respectively, versus the prior year. The company’s sales growth benefited from the addition of hospitals and clinics to its network, as a well as being helped by a small gain in its average reimbursement rate. While implementation of the healthcare reform legislation will undoubtedly lower reimbursement rates for the industry, Select Medical’s customer base of long-term care patients are the least likely to feel the brunt of the changes.

The bottom line

The hospital sector has been a good pick over the past twelve months, as investors speculate that a greater number of insured people will mean lower bad debt write-offs and higher profits for the industry. Of course, the federal healthcare programs’ persistent funding problems mean that a gradual reduction in rates and a higher level of audit oversight is a foregone conclusion. As such, Select Medical will probably fall into the arms of a larger competitor that wants a strong position in the growing rehab segment. Therefore, the company deserves a position on investors’ healthcare watchlist.

The article Is This the Last Tie-Up in the Hospital Sector? originally appeared on Fool.com and is written by Robert Hanley.

Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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