In third quarter local healthcare companies improving, but …


In third quarter local healthcare companies improving, but struggling. LifePoint goes private.

By MATT BLOIS

In the third quarter of 2018, several local healthcare companies reported some improvement as they tried to reverse recent financial losses.

Several hospital chains are selling off or closing unprofitable locations to slow their losses, but LifePoint Health reported strong financial results during its last quarter as a public company. The senior living company Brookdale also is reducing the number of communities it owns.

The Home Page spoke with Robert Collins, a managing partner at Wealth Management Group of Tennessee, to review the third quarter performances of several public healthcare companies in Williamson County. Here’s a summary of how they did.

American Addiction Centers

American Addiction Centers provides healthcare to adults struggling with addiction and co-ocurring mental health disorders.

According to the Centers for Disease Control, the rate of deaths from opioid overdoses increased by 200 percent between 2000 and 2016.

Despite the increasing number of people addicted to drugs, CEO Michael Cartwright said American Addiction Centers had a rough quarter because of a change to Google’s search results.

The company lost $11.5 million in the third quarter — a loss of about $0.47 per diluted common shares.

“This was a difficult quarter and we’re not pleased with the results. We faced some very difficult, unanticipated headwinds that sharply impacted call volume,” he said on a conference call on November 6.

In early August, Google updated its search algorithm in a way that made it harder to find the company’s website. That resulted in a 30 percent decline in calls to the company’s call center and a 10 percent decrease in patients between July and September.

“This particular change hit healthcare and wellness related websites so hard that (search engine optimization) analysts are referring to the update as the medic change,” Cartwright said.

In response, the company hired a new a new Chief Digital and Marketing Officer in September. The company also changed the way call center employees are compensated and gave them more training.

Revenue from inpatient facilities decreased, as well as the average daily revenue from inpatient facilities.

Despite the problems caused by the change to Google’s algorithm, outpatient visits to American Addiction Centers increased by 163 percent compared to the third quarter of 2017.

Brookdale Senior Living

Brookdale Senior Living manages assisted living centers and provides healthcare services for senior citizens. The company calls itself the largest senior living company in the U.S.

During the past several years, the company has lost hundreds of millions of dollars and the company is working to reverse that trend. In the third quarter of 2018 Brookdale lost $37.1 million.

According to Brookdale, the entire senior living industry is facing challenges because of an oversupply of senior living facilities nationwide and a tight labor market.

The company believes that it can become profitable in the long run because the U.S. population is becoming older and there will soon be a greater need for companies with the capacity to care for seniors.

On a conference call, a spokesperson for Brookdale said the company previously had a problem retaining employees, but now the company is focusing on improving retention. Collins said he was encouraged by the company’s efforts to improve the culture.

“With Brookdale and the service industry that they’re in it’s about culture, culture, culture,” Collins said. “I would give the board and the C-Suite credit for realizing that’s a problem that they have to fix.”

Collins said focusing on company culture will create a solid foundation that will help improve the company’s bottom line.

On a conference call, CEO Cindy Baier said the company is on the right path. She cited an increase in leads for new residents and first visits, as well as a decrease in move outs, as signs of success.

“We are seeing some early traction from these efforts but it will take time to reap the benefits from these initiatives,” Baier said.

The company also is selling properties and ending leases for less-profitable assisted living centers. Earlier this year, a private equity firm criticized Brookdale’s leadership for not getting rid of those less-profitable communities fast enough.

Since the beginning of 2017, Brookdale has sold or ended leases for 104 communities, totaling more than 10,000 units. That has decreased overall revenue compared with 2017, but the cost of operating facilities is down and the revenue per occupied unit within communities is up.

General administrative expenses also decreased by about 10 percent compared to the third quarter of 2017. The company said that’s because it decreased the number of employees at the corporate headquarters in Brentwood.

On the conference call, Baier also praised the work of Brookdale employees during Hurricane Michael and Florence. There were more than 240 communities that could have been impacted and nine communities evacuated. Most residents and staff moved to other Brookdale facilities during the hurricanes.

Community Health Systems

Community Health Systems manages a network of 115 hospitals across 20 states. The company calls itself one of the larges hospital organizations in the nation.

Community health Systems has struggled to make a profit over the last several years. In the third quarter of 2018 it lost $325 million, mostly because of a group of especially unprofitable hospitals.

The company sold nine hospitals in 2018 and plans to sell five more. It closed two hospitals, including one in Tennessee. CEO Wayne Smith, said the losses in the third quarter of 2018 were primarily due hospitals that the company recently sold or closed.

“Excluding these hospitals from the third quarter of 2018 performance our same store adjusted admissions and surgeries would have been positive,” he said on a conference call.

The company believes that it can improve its overall performance as it continues to sell hospitals. Collins said Community Health Systems likely has lots of work to do.

“They might be righting the ship, but they’re not righting it extremely quickly,” he said. “There’s still trouble on the horizon until they get to a point where they can show a profit.”

On a conference call, Chief Operating Officer Tim Hingtgen said the company plans on cutting costs and improving hospital management to improve profits going forward. That will likely mean closing less profitable hospitals and phasing out less profitable services.

In September, the company announced that it reached a resolution that ends a U.S. Department of Justice investigation into Health Management Associates regarding improper billing.

Community Health Systems bought Health Management Associates in 2014 and knew about the investigation before the purchase. In a press release the company said the settlement acknowledges that the improper billing occurred before the merger.

The government won’t prosecute the company, but does include one guilty plea for a company owned by Health Management Associates. Community Health Systems plans to pay $266 million as part of the settlement in the fourth quarter.

LifePoint Health

LifePoint Health, which manages a network of hospitals across the U.S., reported its last financial results as a public company in October.

The company was purchased by RCCH HealthCare Partners, which is owned by an investment company. That sale was finalized last week and the company was removed from the New York Stock Exchange.

Shareholders overwhelming voted to approve the merger at a special meeting two days after the company released its third quarter results. Shareholders will receive $65 per share.

Collins called LifePoint one of the big success stories in the area. The strong financial performance attracted buyers, and now shareholders will benefit.

“LifePoint probably executed extremely well on their mission, their goals, their growth, their revenues,” he said. “When you become an attractive target, suitors start chasing you. They clearly found a company that aligned well with what they were looking for.”

The new company will be called LifePoint Health and will continue to have its headquarters in Brentwood. Former CEO William Carpenter will retire and the previous COO David Dill will become CEO.

“Following the completion of the transaction, LifePoint’s footprint will span coast to coast,” Carpenter said during the special meeting. “We’ll integrate with RCCH and together we’ll bring our disciplined focus and operational excellence to even more communities across the country.”

In its third quarter results, LifePoint reported that it will pay Carpenter $21.6 million through stock awards following his retirement. 

At the special meeting in October, 83 percent of shareholders voted against a plan to award outgoing executives millions of dollars in stock. However, the vote was advisory.

In its last few months as a public company, LifePoint earned $23.3 million. Excluding non-operational expenses, such as the severance package for Carpenter and a legal settlement, the company would have earned even more.

Quorum Health

Much like Community Health Systems, Quorum Health also reported a loss of profits and plans to close or sell unprofitable hospitals.

Quorum reported a loss of $53.9 million in the third quarter of 2018. However, hospital revenues went up compared to the same period in 2017. Hospital admissions fell compared to the third quarter of 2017, but revenue per patient increased.

Collins said Quorum’s story is very similar to  Community Health System’s.

“From a publicly traded company investment perspective, healthcare has traditionally been a very strong sector, but hospital management companies, at least these two, seem to be struggling,” he said.

In 2018, Quorum closed one hospital and sold three. The company plans to sell five more facilities soon. The company plans to use proceeds from the sale of hospitals to reduce its debt.

In an effort to improve profit margins, Quorum terminated 120 full-time employees and 22 physicians. It also discontinued OB/GYN and neurology services in some markets, and sold an oncology clinic.

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