HCA Chief Sets Sale

Jack Bovender's ready to sell some stock.
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The leader of

HCA

(HCA) - Get Report

has announced plans to sell a large chunk of company stock in the midst of a tough industry environment.

HCA CEO Jack Bovender intends to cash out options for up to 420,660 shares of stock -- about 17% of his stake in the company -- between now and April 2007. The options are set to expire two years later.

In a press release issued Thursday, HCA said that Bovender is selling the stock for "estate-planning purposes." But the announcement came just one day after HCA reported another quarterly increase in uninsured patients who rarely pay their bills. It also coincided with analyst reports predicting even tougher times ahead.

Bovender himself has portrayed HCA stock as a very good investment. He did so just before he revealed his own planned sales, in fact.

"I would like to point out that if you were an owner of HCA stock on Jan. 1, 2005, and you reinvested the dividends you received during the year, your total shareholder return on investment was approximately 30%," Bovender said during Wednesday's fourth-quarter conference call. "This compares to returns of less than 10% from the S&P 500, Fortune 100 and an average of the peer companies in our sector."

UBS analyst Kenneth Weakley offered a different picture of the stock as a long-term investment, however. He noted that the stock has been stuck in a narrow trading range -- mostly in the $40s -- over the past five years. And he called that valuation reasonable given the company's "lack of progress on bad debt" from the uninsured.

In recent months, a slew of HCA executives have been cashing in their stock. Bovender is simply the latest -- and highest-ranking -- official to join that selling spree.

Some, such as CRT Capital analyst Sheryl Skolnick, feel a bit uncomfortable with that pattern.

"I personally never like to see management sell stock while they're still at the company," she explained.

HCA revealed Bovender's plans as the

Securities and Exchange Commission

probes past stock sales carried out by numerous insiders -- and one high-profile outsider as well. Last fall, the SEC started questioning both HCA and Senate Majority Leader Bill Frist, a member of the family that founded the hospital chain, about stock sales they executed just ahead of a profit warning that caused the shares to dive. Both parties are cooperating with the probe.

Meanwhile, HCA's stock slid 1.3% to $47.76 on Friday. It has fallen nearly 20% from the all-time high it set during a previous flurry of insider selling in the summer of 2005.

No Immunity

To be fair, HCA has performed better than many of it smaller peers.

While other hospital operators -- including

LifePoint

(LPNT)

and

Universal Health

(UHS) - Get Report

-- fell short of fourth-quarter expectations, HCA actually delivered an upside surprise. HCA's strong pricing and effective cost-cutting, particularly for supplies such as orthopedic devices, enabled the company to hit its targets.

Still, as analysts noted, HCA could not escape negative industry forces in the end.

"Despite its best efforts, HCA hospitals experienced weaker profitable admissions, intensifying local competition, higher operating costs and fast-rising uninsured patient volumes," wrote Prudential analyst David Shove, who has a neutral-weight rating on the company's stock. "HCA's fourth-quarter performance showcases the hospital industry's increasingly turbulent and tumultuous environment."

HCA's same-hospital admissions crept up just 0.3% in the latest quarter. Even worse, the company's outpatient surgeries -- which can be quite lucrative -- actually declined. Given HCA's heavy investment in outpatient care, Shove found the latter metric especially alarming.

If anything, however, Shove fretted even more about a big area of growth for the company. HCA saw its uninsured admissions spike by a whopping 15% during the recent quarter.

"HCA's unpaid patient volume problem has worsened," Shove pointed out. "HCA's patient management tactics have lost their effectiveness and become as impotent as a Nevada boxing commissioner."

Shove sees a lasting problem for the industry overall. Indeed, he fears that several developments -- such as Medicaid cuts and more widespread adoption of high-deductible health plans -- could make the situation even worse.

Looking ahead, therefore, he believes that HCA's profit margins could face "considerable pressure" as time goes by.

Weakley sounds slightly more upbeat about HCA while remaining cautious on the industry as a whole. He believes that HCA's hefty capital investments have made the company more competitive and paved the way for growing market share in the future.

But in the meantime, he acknowledges, HCA has been relying on uninsured patients for much of its gains.

"The bad-debt issue for the company appears inexorable, with uninsured admissions increasing by more than 15% -- dramatically faster than inpatient visits," acknowledged Weakley, who has a neutral rating on HCA's stock. "Indeed, without the increase in uninsured admissions, same-facility admits would have fallen by 0.4%" in the latest quarter.

Peter Young, a business consultant for HealthCare Strategic Issues, expressed some alarm at that development.

"When HCA's paid admissions actually decline, that tells you where the industry is headed. This," he declared, "is a big, big problem."