HMA shares fall on legal, financial issues

Shares of Health Management Associates, the parent company of Sparks Health System, began to recover Wednesday (Jan. 11) following several rounds of negative legal and financial reports.

Naples, Fla.-based HMA, which also operates Summit Medical Center in Van Buren, saw its share price fall below $5 per share in early Tuesday trading. The drop followed three reports from CRT Capital Group outlining “disappointing” preliminary fourth quarter financials and an October 2011 lawsuit against HMA that “bears watching.”

In mid-day trading on Wednesday, HMA shares (NYSE: HMA) were up 31 cents to $6.36. Shares closed the first day of 2012 at $7.25, and closed Jan. 10 at $6.05. During the past 52 weeks, the share price has ranged from an $11.74 high to a $4.81 low.

FRAUD CHARGE
Stamford, Conn.-based CRT Capital Group issued on Jan. 9 an investor note about a lawsuit alleging that officials at four HMA hospitals (Medical Center of Southeastern Oklahoma in Durant; Physicians Regional Medical Center, Naples, Fla., and Collier, Fla., facilities; and the Dallas Regional Medical Center in Mesquite, Texas) participated in “widespread Medicare fraud.”

The lawsuit was filed by Paul Meyer, a former HMA director of compliance and a 30-year veteran of the Federal Bureau of Investigation. HMA has countersued Meyer, and is saying he was fired for insubordination. HMA also alleges that Meyer took confidential documents and has refused to return them.

CRT analysts took care to note that ex-employee lawsuits are not always fully believable.

“But this is not your ordinary ex-employee, nor is it your ordinary ‘wrongful termination’ suit. No indeed: the employee in question is an ex-FBI agent, a former Director of Compliance at the corporate level for HMA, with long experience at the Bureau investigating Medicare fraud,” CRT noted in the Jan. 9 investor note. “When a 30-year veteran of the Bureau makes a claim of Medicare fraud, we think investors not only need to know, but also need to be at least watchful and at most worried.”

A jury trial is set for January 2013, but U.S. District Court Judge Robert Scola Jr. (Southern District of Florida) ordered mediation to seek an out-of-court settlement. CRT noted the interest in which HMA has placed on forcing Meyer to return documents.

“Reading through the court filings, we couldn’t help but be struck by this: what on earth is in those documents and wouldn’t we just love to get our eyes on them because it seems to us that there must be something really, really interesting in those files, notes, emails and reports for there to be so many parties wanting them so badly,” CRT noted.

‘NO MERIT’
HMA CEO Gary Newsome said during a Jan. 10 healthcare conference in San Francisco that the Meyer lawsuit “has no merit whatsoever.”

“In fact, we feel very comfortable in saying that publicly, and I think that’s unusual in lawsuit cases,” Newsome said.

HMA also announced Jan. 10 that Tim Parry, a senior vice president and general counsel and secretary, had resigned immediately from his job duties and will leave the company on Mar. 2. Parry also was responsible for HMA compliance.

“(T)he departure of a General Counsel (GC) who also heads compliance at a time when the Company is under two OIG investigations is NOT GOOD NEWS, in our view,” CRT noted in a second investor note released Jan. 10.

FINANCIAL MISS?
Also on Jan. 10, CRT analysts noted that HMA’s preliminary fourth quarter results missed a CRT revenue estimate by $88 million. CRT said it suspects the decline in revenue may be related to an up to 4% decline in inpatient admissions during the quarter and revenue from the recent acquisition of HMA.

“We are also concerned about the performance of the recently completed Tennova acquisition that was anticipated to add $600 million to the top line on an annualized basis,” CRT explained. “We fear that Tennova might have significantly underperformed expectations during the quarter. In other words, either the same store hospitals generated substantially less than the $1.48 billion in revenue we modeled for 4Q11 or Tennova is no where near on track to deliver $600 million in annual revenue.”

HMA purchased Sparks Health System in a $138-million deal that closed Nov. 30. The company operates 66 hospitals — including Summit Medical in Van Buren — in 15 states and employs more than 40,500. The publicly held hospital company is directly and indirectly affiliated with about 10,000 physicians.