Out of the ER

COVER UPDATE

It's good to be a shareholder of Health Management Associates again.

When the Naples-based hospital operator delivered a 40% increase in profit in the third quarter, the company's stock jumped 10% to more than $8 a share in the two days that followed.

To deliver that kind of performance even as it had to write off 26.5% of net revenues for uninsured and indigent patients has been no small feat. In the third quarter, HMA posted net income of $35.3 million on $1.27 billion in revenues.

Credit Gary Newsome, the veteran hospital executive who became president and CEO the same day Lehman Brothers filed for bankruptcy protection in September 2008. Two months later, HMA's stock fell to a low of 79 cents per share when the hospital company itself became the object of bankruptcy speculation.

Newsome engineered the turnaround by focusing on three areas at its 60 hospitals: improving efficiency in the emergency room, hiring specialist physicians and adding services in its existing markets. “We have market-share growth opportunities in every one of our markets,” says Newsome.

At the same time, HMA has taken advantage of opportunities in the market to acquire struggling hospitals at depressed prices. It has done so by using its own cash while paying down debt used to finance a $10-per-share dividend payout in March 2007.

For example, HMA paid $152 million to buy the 413-bed Wuesthoff Health System on Florida's east coast. Wuesthoff generates $290 million of net revenues annually. “In less than a year, we've acquired $650 million in net revenues and we've been able to do that virtually with cash,” Newsome says.

By hiring specialist physicians and adding new services through outpatient and imaging centers, for example, HMA has been able to retain and attract more patients to its non-urban hospitals who might have gone elsewhere for treatment.

Revenues and surgeries at hospitals owned for longer than one year rose more than 5% in the third quarter even as annual comparisons were skewed by last year's swine flu that resulted in more emergency room visits last year.

Newsome has also been successful at controlling expenses. Instead of letting individual hospitals order supplies and services like it had in the past, the corporate office in Naples used the leverage of its 60 hospitals to negotiate better deals.

The emergency room has been a big focus of the company too because that's how 70% of HMA's patients enter the hospitals.

“We've done a good job of managing our front door, which is our emergency room,” Newsome says. That includes sorting cases in the emergency room and steering those who don't truly need emergency care to community clinics.