Leaders at

HCA

(HCA) - Get Report

, the nation's largest hospital chain, seem to be betting against an industry turnaround.

Just look at HCA Chairman Jack Bovender. On Feb. 2, with HCA's stock in an upswing on hopes for a recovery, Bovender sold 500,000 shares underlying options, clearing some $9 million. Other HCA insiders soon rushed to follow his lead with multimillion-dollar transactions of their own.

HCA didn't comment on the timing of the sales. But coincidentally, Bovender sold just a day after a leading government figure offered testimony suggesting that the industry's biggest problem -- bad debts from the uninsured -- could soon get worse instead of better. Mike Leavitt, secretary of the U.S. Department of Health and Human Services, was talking about the desperate need to control spending on the government's health care coverage for the poor.

Leavitt declared the Medicaid program -- which funds health care services for 46 million people who often lack other insurance -- financially unsustainable. He noted that, for the first time ever, states are now spending more on their Medicaid programs than they are on their public schools. He then cited specific problems already highlighted by the states themselves.

He noted that cash-strapped Tennessee is currently in the process of removing huge crowds from its generous "TennCare" program. He also talked about a Medicaid funding crisis in Alabama and inevitable cuts in Ohio.

"The deputy director of Ohio's Medicaid program summarized the situation by asking: 'What's a word bigger than catastrophe?'" Leavitt said.

But the states pay for only part of Medicaid's costs. The federal government picks up much of the tab -- and it plans to get stingier.

Last month, following Leavitt's push for reforms, Congress passed a budget that aims to trim Medicaid growth by $10 billion over the next five years. The

Chicago Tribune

portrayed the cuts as the first of their kind since 1997. Incidentally, 1997 is the year that Congress passed the Balanced Budget Act that reduced hospital payments and sent the industry into a tailspin.

For now, however, hospital stocks continue to hold up well. Shares of HCA, which tumbled after budget cuts in the late 1990s, inched up 11 cents to $55.27 on Thursday and have rocketed 35% over the past year. The stock was down 38 cents in an up market Friday.

Cashing In

A slew of HCA insiders have made plenty on that gain.

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The same month that Bovender cashed in, two senior managers -- Treasurer David Anderson and Chief Investment Officer Noel Williams -- joined three vice presidents in executing or filing to do multimillion-dollar transactions.

The big transactions picked up again near the end of the month, when HCA suddenly announced plans to sell 10 of its hospitals. Most of those hospitals are located in poor states with big Medicaid challenges. Two are based in hard-hit Tennessee, where HCA will continue to operate a dozen facilities even after the planned sale.

"Many of the facilities to be divested have been a part of HCA for several years," Bovender acknowledged when announcing the company's plans. "Although it was a difficult decision, we believe the divestitures are in the best long-term interests of the company, the affected hospitals and their local communities."

Bovender's comments came on the same day that a federal judge began hearing Tennessee's argument for cutting 323,000 people from the state's Medicaid program. Currently, 1.3 million people -- or nearly one-fourth of the state's entire population -- receive Medicaid benefits under the TennCare plan, the

Commercial Appeal

reported.

Volunteers

Without cutbacks, the Tennessee governor has argued, the state will soon be spending 91% of all new revenue on nothing but TennCare. Thus, the state hopes to begin scaling back now with some $600 million worth of cuts this year.

But the move could leave a much larger uninsured population -- already totaling 700,000 -- in Tennessee. And hospitals there, including some owned by HCA, have been providing plenty of free care to the uninsured already.

Peter Young, a business consultant for HealthCare Strategic Issues, understands why HCA has decided to sell at least two of those facilities. He says that one has spent a year in the red, and the other has spent three.

Moreover, he says, other HCA hospitals have been losing money as well. He points to West Virginia, where HCA is selling four hospitals, as another tough market. There, he says, HCA is attempting to shed two unprofitable hospitals and another that -- heavily dependant on Medicaid -- could soon wind up with some big losses of its own.

Since HCA announced plans to cut its asset base, two of the company's highest-ranking executives have joined in the stock-selling frenzy. On April 22, President Richard Bracken sold $4.13 million worth of company stock. On the same day, CFO Milton Johnson sold twice that amount.

Young, for one, questions why so many HCA executives have decided to pocket their gains now rather than later.

"Historically, HCA insiders have been lucky in knowing when to sell," Young says. "Perhaps investors should be pondering if it is luck or a very keen understanding of the future."

Peter Cohan, an investment strategist with no position in the stock, offers one comforting suggestion. Perhaps, he says, HCA executives have simply decided to diversify their portfolios at a time when the price is right. He sees no evidence, yet, to indicate they are bailing for a reason.

Of course, Cohan also sees no real proof that hospital operators -- including HCA -- have cured one of their biggest headaches, either.

"I think the uninsured problem is more likely to get worse than better," Cohan says. "I don't see anybody doing anything to solve it."