A strong hospital company has fallen suddenly ill. Universal Health Services ( UHS) is suffering through a weak first quarter that some fear could signal an epidemic throughout the industry. The Pennsylvania hospital operator warned on Monday that first-quarter profit could fall "as much as 25%" below last year's results because of deterioration in its acute-care business. Universal blamed widespread industry ailments -- particularly rising bad debt -- as well as company-specific problems for the shortfall. "Certain of the company's acute-care facilities have been impacted by a negative shift in payor mix, a decline in intensity and an increase in length of stay," Universal announced on Monday. "In addition, the rising level of uninsured and self-pay patients continues to unfavorably impact our bad-debt expense." The company, which has withdrawn its guidance for 2004, saw its shares skid 16% to $45.28 after its poor first-quarter prognosis. Several hospital peers -- including HCA ( HCA), Health Management Associates ( HMA) and LifePoint ( LPNT) -- also weathered selloffs as investors fear an industrywide problem. "This news may suggest a challenging
first quarter for the group," explained Lehman Brothers analyst Adam Feinstein. Some of Universal's problems may not prove contagious, however. The company acknowledged that it had overstaffed its hospitals for business that did not materialize in the first half of the quarter. It blamed its soft admissions, in large part, on competition from nearby physician-owned facilities. It also said it has been treating more Medicare patients -- for longer periods -- who bring in a limited amount of revenue.