Health Management Associates ( HMA) is relying on a special formula to boost its strong immune system. By classifying many of its patients as charity cases, HMA has so far avoided the bad-debt problem that's infecting the rest of the industry. The company -- utilizing a form of preventive medicine -- simply refrains from recognizing revenue that could turn into bad-debt expense down the road. HMA touted its prescription for health when reporting another "record" quarter on Tuesday. And several analysts were quick to applaud the company's strategy. "The company disclosed its charity care write-offs for the first time, which confirmed its conservative revenue recognition practice," wrote Lehman Brothers analyst Adam Feinstein, who has an overweight rating on HMA shares. "We suggest the shares will trade higher this morning with this disclosure." They did. After simply matching earnings expectations -- as it has for the past year -- HMA saw its shares rocket 6% to $22.64 late Tuesday morning.
To be fair, HMA delivered several upside surprises. First-quarter revenue, up 29% to $834 million, came in $13 million ahead of analyst expectations. Cash flow of $84 million, which more than doubled off of last year's depressed levels, handily beat most forecasts. And admission growth, totaling 3.7% on a same-facility basis, struck Wall Street as particularly strong. But Fulcrum analyst Sheryl Skolnick -- one of few HMA bears on Wall Street -- still found plenty to growl about. She pointed out that cash flow per adjusted admission was still down for the first half of the year. And she, for one, took little comfort in the company's bad-debt ratio. Skolnick said the company's latest report, which showed a 61.5% surge in charity care from 2002 to 2003, only boosted her concerns about the company. Skolnick already expressed some worry about the company's nonpaying patients after reviewing financial reports for HMA hospitals in Florida.