Health Care's 10 Dumbest Things, Part Two

4. Matria's False Hopes

This year, Matria (MATR Quote) had to eat its words.

At first, the Georgia-based disease-management company couldn't stop talking about the big contract it had landed with WellCare. After all, that contract would not only help the company meet its aggressive full-year guidance -- which was heavily back end-loaded -- but it could also pave the way for similar deals with other health insurers.

Indeed, it was supposed to be the first of many deals that would justify Matria's ambitious takeover of CorSolutions and the expansion beyond its core business -- dealing directly with employers --and into the health plan arena.

Just four months into that 10-year deal, however, both parties decided to cancel. Hoping to at least soften the blow, Matria assured that the cancellation would have no real impact on its 2007 results.

That was probably true, since Maria arranged to hold on to that contract until the end of the year. But the company still wound up missing its targets and cutting its guidance, anyway.

"It's déjà vu all over again," BB&T analyst Newton Juhng declared when downgrading Matria in July. "Management credibility takes another blow."

Well, if nothing else, Matria leaders do make good punching bags. They got bruised again when delivering another quarterly disappointment a few months down the road.

Apparently, though, those tough guys feel they deserve more money for taking so much pain.

"Management may think that they are under-compensated," Juhng observed. "But when we see a company use up 30% of its ... earnings to pay out option expense, we cannot agree."

Battered investors no doubt wish they earned so little.

Dumb-O-Meter Score: 85. "Has management learned its lesson?" Juhng wondered. "We're not sure."