HealthSouth is continuing construction on its hospital in Ocala, Florida, and expects to open the hospital in December. In 2013, HealthSouth expects to open its joint venture hospital in Stuart, Florida and its wholly owned hospital in Littleton, Colorado. It is delaying construction of its Southwest Phoenix hospital until growth trends improve there. Certificates of Need (CON) for hospitals in Williamson, Tennessee and Middleton, Delaware are in litigation. HealthSouth expects the CONs to issue for these hospitals in 2013 and for the two hospitals to open in 2014.
HealthSouth recently announced a Letter of Intent (LOI) to purchase Walton Rehabilitation Hospital, a 58-bed rehabilitation hospital in Augusta, Georgia. The purchase should close early next year.
In September 2011, HealthSouth bought an antiquated facility in Ludlow, Massachusetts. When the lease expires in December 2013, the company will construct a replacement facility.
In September, length of stay modestly increased, but it normalized in October. The length of stay increase negatively impacted discharge volume growth by 100 basis points and positively impacted revenue for discharge by 100 basis points.
The E&Y litigation is currently stayed pending a tax appeal to the Alabama Supreme Court in another case involving HealthSouth. That appeal involves one issue similar to the E&Y arbitration: whether the wrongdoing of disloyal employees should be imputed to the employer. Oral argument in the tax case is set for November 7, 2012.
Q4 financial results will be impacted by HealthSouth's decision to replace 2012 merit increases with a merit based UN bonus for all non-management eligible employees. The financial effect of the bonus is $5.5 million. Management salaries will be frozen and management will not be eligible for this special bonus. HealthSouth is also absorbing the cost of medical insurance increases for all employees in 2013. If the reimbursement environment gets worse than the 2 percent sequestration rule, HealthSouth has the ability to quickly reduce capital spending to supplement the salary freezes that will start next year.
Medicare Advantage is not a large part of HealthSouth's business. However, from the business it does have, it has noticed a movement away from per diem pricing to case rate pricing and the case rate pricing is close to what HealthSouth gets from traditional Medicare. Accordingly, this trend may be favorable to HealthSouth.
Financials.
Net operating revenues increased 7.9 percent in Q3 as a result of 4.2 percent discharge growth and solid pricing. Pricing improved for Medicare and managed care payers.
Outpatient and other revenue declined as a result of the operation of two fewer satellite clinics.
Bad debt expenses were 1.3 percent of revenue versus 1 percent of revenue a year ago. Bad debt expenses increased due to an increase in medical necessity reviews and the lengthening of the Medicare denials adjudication process. HealthSouth expects the trend of higher bad debts to continue.
Adjusted EBITDA increased by 13.3 percent in Q3. HealthSouth expects full year adjusted EBITDA to be $490 to $495 million.
EPS in Q3 was $.44, which includes a $05 nonrecurring tax benefit versus .17 a year ago, which included an $.08 tax loss. After excluding the tax adjustments, EPS grew by 56 percent. HealthSouth projects full year EPS to be $1.49 to $1.53/share.
Adjusted free cash flow at the end of Q3 was $71.6 million versus $32.3 million a year ago. HealthSouth has no current plans to initiate a dividend.
The transcript of the earnings conference call can be found on Seeking Alpha at the following link:
http://seekingalpha.com/article/956271-healthsouth-s-ceo-discusses-q3-2012-results-earnings-call-transcript
Copyright 2012 Jaygo's Earnings Conference Call Summaries
This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
Pingates
No comments:
Post a Comment