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Originally posted Aug. 5, 2011: Federal subpoenas go to Naples-based HMA; shares fall

Aug. 4, 2011

Shares of Naples-based Health Management Associates Inc. fell more than 9 percent Thursday after the hospital operator disclosed it had received two federal subpoenas.

One subpoena requested information on the company's physician referrals and ownership and management of its whole-hospital physician joint ventures. Another requested information on emergency room management, including the use of ProMed software.

In a filing with the Securities and Exchange Commission late Wednesday, Health Management said it is cooperating with the government and is in the process of responding to the subpoenas from the Department of Health and Human Services, Office of Inspector General.

“These matters are in their early stages and we are unable to determine the potential impact, if any, that will result from the investigations,” the company said in the filing.
In an additional written statement, the company said “These inquiries are not disruptive to the operations of our hospitals. We remain confident in our compliance policies and procedures regarding physician relationships and the operation of our emergency departments and hospitals.”

Officials declined to comment further.

The company has 59 hospitals in 15 states, including Lehigh Regional Medical Center in Lehigh Acres; Charlotte Regional Medical Center and the Peace River Regional Medical Center in Charlotte County; and two Physicians Regional Hospital campuses in Collier County.

Traders responded more sharply than analysts who cover the company. Shares of HMA closed Thursday at $7.97, down 80 cents from Wednesday.

Some of the drag on the stock likely reflected a steep plunge in the overall markets. The Dow Jones Industrial Average dropped more than 4 percent Thursday, it’s largest drop in about three years.

Baird Equity Research analyst Whit Mayo expected HMA stock to fall.

“Based on our experience, 99 percent of the time, investors blow these events out of proportion,” he wrote in a note to clients, keeping an “Outperform” rating and $13 price target on the stock.

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Noting that the disclosure lacked detail, Mayo said, “It would be foolish for anyone to guess what the inspector general is looking for or at. These subpoenas are broad and vague.”

Mayo said the structure of the roughly 23 joint ventures HMA has with physicians is well known. And he referred to the inquiry into the use of ProMed software as a “fishing expedition” likely based on problems at a different hospital company, Community Health Systems.

“We see neither subpoena as an ‘operational risk,’” he wrote.

Community Health was subpoenaed in April by the Office of Inspector General in connection with an investigation of possible improper claims submitted to Medicare and Medicaid. The company said the subpoena requested documents from all of its hospitals, and appeared to concern emergency department processes and procedures, including use of ProMed software.

Citi analyst Gary Taylor also used the term “fishing expedition,” telling clients it’s too early to tell if that’s what's happening with Health Management. He noted that HMA no longer uses ProMed, replacing the software at the end of last year with a new product.

Taylor theorized that the ProMed subpoena could be related to the fact that its CEO, Gary Newsome, spent five years at Community Health. “The government could be fishing based on this linkage alone,” he wrote.

Mary Gibbs, spokeswoman for Lee Memorial Hospital, said the system does not use ProMed software. She said Lee Memorial representatives couldn’t comment further on the subpoenas or how the physician partnerships compare to Lee Memorial’s own physician groups because they are not familiar with HMA policies or procedures.

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