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HCA’s Slowing Surgery Rates May Signal Decline for Hospitals

HCA Holdings Inc.’s report of a drop in expensive surgeries may signal a broad slowdown for hospitals because of rising unemployment and tepid consumer spending.

Patients at HCA, the biggest U.S. hospital chain, sought less-expensive procedures during the quarter, according to the company. Per-patient income from Medicare, the government plan for the elderly, also fell. Until more hospitals report earnings, the possibility of a wider decline in spending will weigh on the industry, said Arthur Henderson, an analyst at Jefferies & Co. in Nashville, Tennessee, where HCA is based.

“What I’m particularly worried about is that this could be another systemic issue related to the economy that could spell trouble going forward,” Henderson said in a telephone interview. HCA “can fix a company-specific issue, but they’re going to have a lot tougher time fixing a macro systemic issue.”

It’s not clear whether the economy was responsible for the shift in procedures among Medicare patients or whether HCA lost customers to competitors, Henderson said. Investors will be watching Health Management Associates Inc.’s report on July 27 and Dallas-based Tenet Healthcare Corp.’s on Aug. 2 to see if they have similar results. Positive reports could lift all hospital stocks, Henderson said.

Shares Decline

HCA dropped 87 cents, or 3.1 percent, to $27.10 at 10:03 a.m. in New York Stock Exchange composite trading. Yesterday it fell 19 percent to $27.97, the biggest decline since its March initial public offering, after reporting second-quarter profit and sales that missed analysts’ estimates.

Today, Tenet dropped 3.3 percent to $5.82. Community Health Systems Inc. rose 11 cents to $25.82, while Health Management fell 9 cents to $9.68.

Surgery admissions at HCA’s hospitals fell 1.6 percent for the quarter on a same-facility basis, while total admissions rose 1.9 percent. Medicare revenue per admission declined 1.3 percent. Cardiovascular surgeries dropped 3.7 percent and general surgeries were down 2.5 percent, Chief Financial Officer Milton Johnson said in a conference call yesterday.

At HCA, Medicare patients make up about 42 percent of customers, the highest rate among publicly traded acute-care hospitals, according to data compiled by Bloomberg Industries. The company also has the slowest revenue growth per admission, adding to the impact from fewer high-cost surgeries.

Managing Expenses

“We didn’t like the quarter, clearly,” said Richard Bracken, chairman and chief executive officer at HCA, in a conference call with analysts. “We are looking to continue to manage expenses appropriately.”

Lower costs of services would be good news for managed care companies, according to David Windley, an analyst at Jefferies & Co. UnitedHealth Group Inc. and WellPoint Inc. are the largest U.S. health insurers.

“HCA missed their numbers, but that’s good news for managed care companies, who will be more profitable as utilization of medical services fall,” Windley said in a telephone interview.

HCA reported second-quarter profit, excluding $75 million to pay off debt, of 51 cents a share, 9 cents less than the average estimate of 23 analysts surveyed by Bloomberg. Revenue climbed 4 percent to $8.06 billion, also missing estimates.

Admissions of uninsured patients increased 11 percent in the second quarter from a year earlier and accounted for 7.4 percent of same-facility admissions, the company said.

HCA operated 164 hospitals and 111 freestanding surgery centers as of June 30.

A group including KKR & Co., Bain Capital LLC and Bank of America Corp. invested about $5 billion in private equity in 2006 to acquire HCA in a $33 billion takeover. Including debt, the transaction was the largest leveraged buyout at that time.

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