Health Management Associates ( HMA) is looking a little peaked.

The rural hospital chain, long known for its robust growth rate, fell short of quarterly expectations Tuesday due to sluggish patient admissions. First-quarter revenue grew 8.7% to $822 million but came in shy of the $841 million consensus estimate. Excluding a boost from hurricane insurance, the company's first-quarter profits of 32 cents a share missed the mark as well.

HMA's stock slipped 1.5% to $23.38 on the quarterly update.

Still, at least one industry expert had expected even worse. Peter Young, a business consultant at HealthCare Strategic Issues, said that HMA has been hit particularly hard by the lingering effects of multiple hurricanes in its home base of Florida. He had assumed that HMA could wind up suffering more than most in the battered hospital sector.

"HMA's admission trends reflect both the hospital business environment -- which, by and large, has demonstrated sluggish volumes -- and, more specifically for HMA, a significant decline in volumes related to Florida," Young said. "This leads to an important question about the sustainability of revenue going forward."

HMA managed to grow same-store revenue -- for the 65th quarter in a row -- despite a 2.6% drop in same-store admissions. The company pointed to last year's hurricanes as a reason for weakness and warned of ongoing storm-related challenges "through the balance of fiscal 2005."

During the latest quarter, however, a big insurance payment helped ease the pain. Banc of America analyst Gary Taylor estimates that the $5.1 million payment added 2 cents to HMA's earnings and, thus, allowed the company to meet Wall Street expectations.

Taylor pointed to HMA's cash flow from operations, up 66% to $155 million, as a bright spot for the quarter. In contrast, net income climbed by only 10.4% to $78.8 million. But Taylor said "it's hard to imagine" how HMA's cash flow growth will continue to significantly outdistance its operating results in the future.

Meanwhile, Taylor dwelled on sore spots. He called HMA's same-store revenue growth of 3.5% the "weakest in six years." And he said the drop in same-store admissions looked even worse.

Prior to Monday's earnings report, Young had warned his clients of a drop in HMA volumes. He cited "timely operating data" for HMA's Florida hospitals -- including a major cardiac center -- when presenting his case.

In 2003, he said, HMA's Charlotte Regional Medical Center in Punta Gorda, Fla., increased profits by 50% to $6 million and ranked as "either the top or second-largest margin contributor" in the company. But in recent quarters, he said, cardiac catheterizations there have started to plunge. Between August and November, he calculated, the number of cath procedures fell by nearly 30% from the same period a year earlier.

Now, Young questions why the cardiac volumes were so high in the first place.

"Many in the hospital industry have viewed the hospital's heart numbers with suspicion based on the county population and the hospital's unusually high cardiac volumes, given other hospitals in the market offer the same services," Young explained. "The unusually high numbers make some, myself included, question if HMA has a cardiac volume-related issue ahead like Tenet ( THC) in Redding and recently South Carolina, and more recently HCA's ( HCA) Bayonet Point."

Tenet has spent nearly $450 million settling allegations that it profited from unnecessary heart surgeries at its former hospital in Redding, Calif. The company has also come under fire for performing hundreds of cardiac procedures at a South Carolina hospital that was allegedly not authorized to do so. Meanwhile, HCA recently suspended certain privileges for a number of cardiologists at its hospital in Bayonet Point, Fla., as it conducts an internal review of heart procedures there.

Young, for one, worries about an industry trend.

"Personally, I am concerned physicians pushing the appropriate diagnostic envelope with either direct or tacit approval of hospitals ... is seemingly emerging as the preferred method of gaming the system," Young said. "The early incidence of now-repeated questionable volumes and subsequent reviews makes this area in need of greater review."

Young foresees closer scrutiny of another practice that could hurt HMA in particular. He believes the Federal Trade Commission could begin examining HMA's "glaring, off-the-chart spike" in hospital prices.

Young originally voiced that concern last week, following a new report by UBS analyst Kenneth Weakley. Weakley, who first exposed Tenet's aggressive hospital pricing in 2002, believes that HMA could see its pricing strategy suffer under new FTC scrutiny. The company routinely increases prices at the hospitals it acquires.

Already, Weakley notes, the FTC has filed a complaint against another hospital system for raising its hospital prices. And HMA, he says, employs a pricing strategy that "appears quite aggressive relative to its peers."

Between 1999 and 2001, Weakley estimates, HMA raised prices at its newly acquired hospitals by 56% -- or twice as much as it hiked charges at its existing facilities.

"The data shows that none of the other rural providers employ this same pricing strategy," Weakley wrote last week. And "we believe that hospital pricing strategies dependant on a lack of transparency across the healthcare delivery system are not sustainable, with the FTC complaint serving as a good reminder that many entities across healthcare have not lost interest in this topic."

Young clearly sees HMA as a potential FTC target.

"I wonder, in this instance, if Weakley is pondering or signaling an HMA review is on," Young said. "If not, after FTC people read the report, odds are some questions will be asked."

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