The Five Dumbest Things on Wall Street This Week

Out of Joint No so fast on discounts, Zimmer tells HCA

1. Hospital Cornered

HCA (HCA) is hip to the importance of telling the truth.

Execs at the cost-cutting hospital chain trumpeted Feb. 1 that they had "met our targets" on an important orthopedic implant contract. The deal promises manufacturers like Zimmer (ZMH) and Stryker (SYK) joint-replacement sales volume in exchange for price cuts.

On an earnings conference call, HCA execs conceded that they were several percentage points short of satisfying the contract as of year-end. But "the good news is that we have now met our targets" and discounts will continue, execs added.

The bad news, they might have added, was that the story they were telling wasn't true. Wall Street learned of this disconnect Monday, when Zimmer sent HCA a scathing letter and disclosed the whole mess in a regulatory filing.

Zimmer says HCA tried three times to ease the contract terms, without gaining Zimmer's consent. HCA even made its third request to Zimmer the day after last week's conference call, TheStreet.com's Melissa Davis points out. By then, Zimmer had actually started to increase its prices, after HCA failed to meet its compliance targets last fall. "You acknowledged these September-announced price increases by paying numerous invoices thereafter based on the revised pricing," Zimmer notes in its letter to HCA.

Confronted with the actual workings of the discount contract, HCA discarded its version of the story and sat down to dine on some crow.

"At the time of the conference call, HCA was in active negotiations with representatives of Zimmer to reduce its compliance commitment from 95% to 90%, and HCA believed it would be able to obtain that change," the company said in a Tuesday afternoon response to Zimmer's letter. "Having reviewed the letter from Zimmer filed with the Form 8-K, we conclude we were wrong in this belief."

Better late than never.

Dumb-o-Meter score: 95. Adds HCA chief Jack Bovender, "I regret any incorrect statements we have inadvertently made." Sure, now you do.

To view Colin Barr's video take on Motorola's entry in Five Dumbest this week, click here.