Columbia/HCA losing patients amid probe It warns of slump in 3rd-quarter earnings

Health care

September 10, 1997|By BLOOMBERG NEWS

NASHVILLE, Tenn. -- Columbia/HCA Healthcare Corp. said yesterday that it is losing patients amid a government investigation into its business practices, and warned that third-quarter earnings will be about half what analysts had expected.

The largest U.S. health care company said it expects profit before a charge of 26 cents to 31 cents a share, down from net income of 46 cents a share, or $311 million, a year ago. Columbia was expected to earn 53 cents a share, based on the average estimate of 25 analysts surveyed by IBES International Inc.

The forecast is the first sign that the nationwide investigation is hitting Columbia's bottom line, and harder and faster than expected. With new management freezing expansion and retreating to the company's main hospital business, the outlook is bleak, some analysts and investors said.

"It's much worse than expected," said Leo Murphy, who managed 4.2 million Columbia shares at Boston's Pioneering Management at the end of June. "And I can't see why it's going to improve before year's end."

Columbia shares fell $3.0625, or 9.37 percent, to close at $29.625 on the New York Stock Exchange, where it was the most active issue.

The company also said it will take a charge of $60 million, or 6 cents a share, to cover the cost of an internal audit and severance payments, resulting in third-quarter net income of 20 cents to 25 cents a share. It sees revenue unchanged from the year-earlier $4.89 billion. Columbia wouldn't break out the charge. Eight top executives, including former Chairman Richard Scott and President David Vandewater, have left.

The company blamed lower patient admissions at its hospitals for the projected profit drop. Patient admissions at sites owned more than a year are expected to decline 1 percent in August from a year ago.

Same-facility admissions rose 2.3 percent for the first seven months of the year.

Thomas Frist Jr., named Scott's successor in July, reiterated that the company may seek to cut costs and staff if "admission trends continue to be soft."

The company didn't elaborate on possible layoffs or speculate on fourth-quarter earnings. Analysts who met yesterday with Frist in New York were scratching their heads trying to figure where the company is headed.

"They're still trying to get their arms around the situation," said Kenneth Abramowitz, an analyst at Sanford C. Bernstein, who attended the meeting.

The earnings warning and stock plunge renewed speculation that Columbia may not exist in a year.

Columbia said last month that it would sell its fast-growing $1.2 billion home-health business, which is under government scrutiny, and most of Value Health Inc., a provider of diverse health care services acquired Aug. 6 for $1.12 billion.

Those sales are part of Frist's dramatic shift in strategy, which includes scrapping acquisitions and $250 million in new construction, and abandoning promotion of Columbia's brand name.

Frist says the moves are aimed at improving the company's image and resolving the probe. Investors remain concerned the company can't maintain its traditional growth target of 15 percent.

Frist hasn't ruled out other divestitures, and other health care companies including HealthSouth Corp. have contacted Columbia or its investment bankers about buying its outpatient surgery centers, rehabilitation business and diagnostic units.

The company could also sell itself altogether rather than break itself up, Pioneering Management's Murphy said.

Columbia talked about a merger with Tenet Healthcare Corp., the second-biggest hospital company, earlier this year, when inviting in Tenet's management seemed one method of resolving the government probe. Frist froze those talks when he took over the company.

Pub Date: 9/10/97

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