Two big names in health care keep giving each other black eyes. Health Management Associates ( HMA) -- long a Wall Street darling -- threw the latest punch by attacking the research of a celebrated health care analyst. The rural hospital chain issued a statement Thursday accusing UBS analyst Kenneth Weakley of making "materially inaccurate assumptions" that "substantially distorted" the conclusions he reached in a report published this week. HMA has publicly struck out at Weakley at least twice for comparing the company to Tenet ( THC). Weakley gained celebrity status for exposing Tenet's aggressive -- and unsustainable -- business practices 16 months ago. But he is now fielding heat from HMA for questioning its pricing strategies as well. "HMA believes through this report and others, Mr. Weakley is improperly attempting to link HMA with problems experienced by Tenet Healthcare Inc. through innuendo and implication," HMA stated on Thursday. "The company believes that Mr. Weakley's irresponsible actions are causing confusion and misleading investors by insinuating that there is a close connection between HMA and Tenet, while facts and circumstances lead to a different conclusion." HMA jumped 2.4% to $21.76 following the company's rebuttal. Previously, Weakley had pointed to HMA's high list prices as a reason for concern. But he went a step further this week by concluding that such prices had triggered some of the same Medicare "outlier" payments that once made Tenet so profitable. HMA shot back on Thursday by refuting Weakley's figures. The company claimed that its current outlier ratio -- or percentage of Medicare revenue derived from the bonus payments -- is 60% lower than the 4.72% Weakley had calculated. It also said that outlier ratios at its Mississippi hospitals, averaging 5.44% last year, are "substantially below the double-digit percentage reported by Weakley." In addition, it said that its outlier ratio for outpatient services falls a full percentage point below the maximum limit.
Although such data was previously unavailable, HMA clearly blamed Weakley for the discrepancies. "Significantly, Mr. Weakley did not contact HMA at any point to verify the data and assumptions included in his report," HMA stated. "That contact would have been prudent in light of the nature of Mr. Weakley's report, and would have helped to ensure accurate, responsible dissemination of information to the investor community." When last attacked by HMA, Weakley refused to back down and -- through additional studies -- continued to build his case instead. Weakley could not be reached by TheStreet.com Thursday for comment. Meanwhile, two of his competitors filled the silence. CIBC World Markets analyst Charles Lynch welcomed HMA's response and reiterated his outperform rating on the stock. "HMA issued a press release this morning correcting numerous estimates made in a competitor's report earlier this week that implied that the company's Medicare outlier payments are higher than its peers'," Lynch wrote on Thursday. "In our view, our competitor's report painted HMA in a harsh light by referencing Tenet repeatedly, while estimates made to do so were based on faulty government assumptions." Merrill Lynch analyst A.J. Rice defended HMA even before the company itself did. Rice expressed faith in management's own numbers and the company's future overall. "We reiterate our buy rating and our belief that HMA has a pristine reputation within the industry," Rice wrote on Tuesday. Rice also rushed to HMA's defense last month, when he blamed a report by TheStreet.com for causing unwarranted weakness in the company's stock. He said issues raised in the article -- including the company's pricing strategy and dwindling cash flow -- had already been "discussed at length" by management. He did, however, warn of a related risk going forward. "We believe the biggest short-term risk to investing in shares of Health Management Associates is that the continued barrage of negative speculation focused upon the company by a few might lead to an inquiry that would have otherwise been highly unlikely to ever materialize given HMA's strong track record and transparent results," he wrote.
Rice is unusually bullish on the hospital sector in general. Earlier this month -- when normally strong Universal Health Services ( UHS) disappointed -- Rice immediately saw a buying opportunity for other hospital names despite hostile industry conditions. He does not recommend Tenet, however. He downgraded the company from neutral to sell after it announced a major restructuring -- including a huge cut in its asset base -- in late January. Lehman Brothers analyst Adam Feinstein had actually upgraded Tenet from underweight to equal-weight just one week earlier. Feinstein made an early, but doomed, call predicting that Tenet would begin to recover later this year. He pointed out that other health care chains, such as HCA ( HCA) and Oxford ( OHP), had bottomed out after 18 months when they began to emerge from their own crises. But Tenet, staring at potential losses both this year and next, obviously faces a much longer recovery. To his credit, Feinstein admitted that his early call could prove wrong. "We believe that earnings are likely not going to move much lower," he stated in January. "However, this is the third time we have made this statement in recent months, suggesting that it is difficult to have high visibility." Hoping for the best, Feinstein raised his price target on Tenet's stock -- then trading for $18.05 -- from $14 to $22. The stock, which tanked this week on news of declining liquidity, climbed 4.5% to $10.51 on Thursday.