Health Management Associates Earnings Call Insights: Strategy for Exchange and Flu-Related Business

Health Management Associates, Inc. (NYSE:HMA) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Strategy for Exchange

Kevin Fischbeck – Bank of America/Merrill Lynch: I wanted to follow-up on some of the commentary that you had on the exchanges. I guess two things. One, you mentioned that you don’t yet know where the rates on the exchanges will be, but I want to see if you have any initial color or had signed any contracts at this point? Then two, it also sounds like you’re willing to potentially take risk or align more with managed care companies. So, could you talk a little bit about what you’re thinking there and then how you get comfortable taking risk, in some of the questions you had about, the services you need to offer, how many people would be on the exchanges et cetera?

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Gary D. Newsome – President and CEO: Really, the strategy for exchange is really going to be market specific and be driven that way. (In terms of) partnerships with payors and assumption of risk, that’s really going to be a reality in certain markets, where there is a density of competition and we have a position to do that. That’s an opportunity there. There were other markets quite frankly that will not be the case. So all of our strategies going into (health) reform environment really is market specific Kevin. And we’ve developed over the last several years an outstanding managed care team and they come with tremendous experience across the industry, and we feel very confident in our ability to continue to reprice, strategically partner certain cases, and that partnership in certain cases also includes physicians.

Kerry Gillespie – EVP, Operations Finance: This is Kerry Gillespie. Let me add just one, you did ask – the part of your question earlier. Regarding our current contracting we have a few small contracts with local or regional managed care companies where the exchange rates are the same as our commercial rates. We haven’t built out any large payors yet in terms of what the exchange rates might be, but we are pressing for close to commercial rates, but that remains to be seen and it will be market specific.

Kevin Fischbeck – Bank of America/Merrill Lynch: Okay, that’s very helpful, and then I guess just going through some of the growth strategies that you’ve outlined recently, I think most of them are pretty apparent and pretty easy to get my head around, but I guess the non-core services that you mentioned, how do you think about rates of return in those businesses, and whether you invest an incremental dollar in one of those opportunities versus into one of the core businesses?

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Gary D. Newsome – President and CEO: Let’s take by the one, the ancillary services outpatient margins are quite frankly better than inpatient margins. As you know as the dollars are not quite as large initially but the market continues to grow on the outpatient side and there really our market development approach it has been for several years now, but it’s been accelerated as really the focus on getting that density in the marketplace and most of that density is developed through outpatient services which typically has a higher margin. In addition Kevin as you’ve seen from our performance at outpatient business the real keys are in identifying the services and providing the access and then managing to it and we’re continuing to see the development of that outpatient business and we think that marches in 2014 in reform very strong.

Kevin Fischbeck – Bank of America/Merrill Lynch: Yes, I guess the outpatient side kind of makes sense, but I guess like the IT and some of the other things that are just a little bit farther afield than the core kind of provision of healthcare I guess is what I was getting at?

Gary D. Newsome – President and CEO: Quite frankly our IT investment is really all about connectivity across the compendium and really the focus of our physician connectivity and building a seamless, making it easy is the important thing here for our physicians to be able to navigate the systems as the finance put on the physicians is getting greater and greater whether they are independent or employees and building our IT strategy around that it really leverages us well against all competitors in the marketplace. In the value that data Kevin is that we’re going to be able to capture a lot more specifically in the clinical areas which will enable us to be in a really good position when we start talking about transactions involving insurance companies and setting up networks across the country. So, we are really frankly pretty excited about what that represents to us as an opportunity and we are making sure that we’ve got the database in place to be a full player in the game and just on…

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Kevin Fischbeck – Bank of America/Merrill Lynch: Mostly is that internal that they are focused on or did you saw this externally as well?

Gary D. Newsome – President and CEO: Well, we haven’t really – we are still in the development phases. I do think that there is element of what we are doing that they could have potential value to others, but we are going to be mainly concentrating on particularly this year transition in 2013 to getting it right so that we can use it to our advantage, right.

Flu-Related Business

Ralph Giacobbe – Credit Suisse: You mentioned in the prepared remarks observation visit was up I guess 24%. Maybe can you help us parse out different geographies where you may be seeing sort of – if you are seeing sort of disproportionate impact, particularly I guess in Florida?

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Gary D. Newsome – President and CEO: Really, in the fourth quarter, that really mapped exclusively where there was high concentrations of flu that increase. The year run rate was 12%. For the fourth it’s 24%. We had as like all providers had a tremendous influx of flu-related business into our emergency rooms, which did not translate to admission. I think historically several years ago a lot of those would have.

Ralph Giacobbe – Credit Suisse: Then I guess on the pricing growth, continues to be strong for the quarter and for the year. I guess one, I may have missed it. Did you give an acuity mix number, what was that up? Second, did payor mix help at all, and maybe can you give those percentages? And then third, again, going back to sort of with observation visit up so much, I would have thought that there would be maybe a little bit more pressure on that pricing stat, so maybe help reconcile those things.

Gary D. Newsome – President and CEO: In fact our case mix index was up pretty dramatically from the prior year from 1.39 to 1.44 which (maps) what we’ve been saying that when patients are admitted they are really sick and we’re continuing to see that, but that’s a very significantly increase for our company and the index relative to the acuity of the patients that we’re treating. And then in addition, we did see that and have continued to see that as services have more acuity, we get a higher – it’s a stronger price because the procedures that are being done are more significant, and that’s helping to drive that across the board. Payor mix about the same. We’ll be putting out our 10-K next week which should give you the figures on the year, but it’s pretty consistent with what it’s been tracking. The shift in acuity, as Kelly said, is particularly true on the outpatient side. While outpatient surgeries were up a couple of percent, breaking that down orthopedics we had a very good quarter. Hips and knees and shoulders as a group were up about 10%. So while we don’t measure acuity on the outpatient side, we certainly know it’s been good and improved.

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Robert E. Farnham – SVP, Finance: And that’s a big reflection of shift to outpatient because more and more people are getting those types of procedures on an outpatient basis which is good in terms of healthcare cost.

Ralph Giacobbe – Credit Suisse: Then then just lastly any update on Mississippi Medicaid and remind us what’s baked into guidance?

Gary D. Newsome – President and CEO: The updates are as we – during our pre-release we were still awaiting to see what was going to happen that with the state because of the magnitude or the facet they put in as of September 1. What the state ultimately decided was that they are going to have submitted and received approval from CMS to make a one-time adjustment for the period of September 1 through December 31 that will be paid to us sometime between April and June. Then speaking of outpatients, on the outpatient side going forward from January they are going to tweak the system to reduce the impact of their transition process. To-date I can’t give you any parameters on that, we just don’t know other than the fact that the indications are presumably going to be less than what it was to begin with, but since we haven’t received the payment we haven’t measured to give you kind of a GAAP measure on that. Then also on the inpatient side on Medicaid it is what it is and that’s going to stay as we mentioned in the pre-release call that’s about $12 million to $15 million impact for us. So, on the outpatient side we said, it would be in the $25 million to $30 million range it now appears that it maybe south of that number, but again we just don’t know what it is.

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Robert E. Farnham – SVP, Finance: This is Bob those were annual.

Gary D. Newsome – President and CEO: Annual figures.

Robert E. Farnham – SVP, Finance: All the 15 is annual its always 25 to 30 on the OpEx those are annual.

A Closer Look: Health Management Associates Earnings Cheat Sheet>>