The patient’s vital signs don’t look good. The outlook for the future is worsening. And there are signs that the patient needs to be examined for other possible problems. Should someone call an ambulance for large hospital chain Health Management Associates Inc (NYSE:HMA)?
Weak vitals and outlook
If admissions serve as the pulse for a hospital, HMA’s heart beat is slowing. Admissions dropped 8.8% during the first quarter, with adjusted admissions falling 5.8%. Health Management Associates Inc (NYSE:HMA) says that fewer uninsured admissions and big increases in observation stays caused the declines.
Surgeries were also down by 5.6%. I’m not sure what vital sign we can use as a comparison, but a lower number isn’t good news for a hospital operator.
As a result of these falling metrics, HMA reported first-quarter earnings of $0.13 per diluted share, much lower than the $0.24 per diluted share from the same period last year. The company also missed the average analysts’ estimate of $0.15 per share.
Health Management Associates Inc (NYSE:HMA) announced first quarter revenue of $1.48 billion, virtually unchanged from the first quarter of 2012. Analysts expected $1.66 billion — another miss. All of this negative news led HMA to lower its outlook for the full year a couple of weeks ago to $0.86 to $0.95 per share.
Further examination required
As if all this isn’t bad enough, HMA also revealed that it received a subpoena from the Securities and Exchange Commission on April 25. The SEC asked for financial documents for Medicare, Medicaid, privately insured, and uninsured patient accounts. Health Management Associates Inc (NYSE:HMA) said that its management is cooperating fully with the investigation.
At this point, there’s no way to know what will come of this SEC probe. HMA hit the nail on the head when they said the company was “unable to determine the potential impact, if any, of this investigation.” It could ultimately amount to nothing. On the other hand, the investigation could present serious problems.
The combination of the SEC subpoena news and the first-quarter results caused Health Management Associates Inc (NYSE:HMA) shares to fall more than 6% in early trading on Friday. The patient is clearly in pain.
Call an ambulance?
HMA’s woes appear to be worse than its fellow hospital operators. HCA Holdings Inc (NYSE:HCA), the nation’s largest hospital chain, also reported sluggish admissions and weakening outpatient volumes in the first quarter. This dragged down HCA Holdings Inc (NYSE:HCA) shares during much of April, but the stock has since rebounded.
Part of the problem for HMA stems from an unflattering 60 Minutes segment aired last December. Some speculate that the TV news program’s story on the company contributed to fewer admissions.
Despite HMA’s multitude of problems, I don’t think anyone needs to call an ambulance just yet. The company, like its peers, should benefit from Obamacare in the days ahead if more uninsured Americans gain insurance as promised.
However, I wouldn’t recommend buying Health Management Associates Inc (NYSE:HMA) shares right now. It’s probably wise to hold off until more is known about the SEC investigation. If HMA receives more bad news on that front, though, turn on the sirens.
The article Call an Ambulance for This Hospital Chain? originally appeared on Fool.com is written by Keith Speights.
Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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