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| MDTH > SEC Filings for MDTH > Form 10-Q on 9-Feb-2009 | All Recent SEC Filings |
9-Feb-2009
Quarterly Report
Three Months Ended December 31,
Division 2008 2007
Hospital 94.9 % 94.1 %
MedCath Partners 5.0 % 5.5 %
Corporate and other 0.1 % 0.4 %
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Revenue Sources by Payor. We receive payments for our services rendered to patients from the Medicare and Medicaid programs, commercial insurers, health maintenance organizations and patients directly. Our net revenue is determined by a number of factors, including the payor mix, the number and nature of procedures performed and the rate of payment for the procedures. Since cardiovascular disease disproportionately affects those age 55 and older, the proportion of net revenue we derive from the Medicare program is higher than that of most general acute care hospitals. The following table sets forth the percentage of consolidated net revenue we earned by category of admitting payor in the periods indicated.
Three Months Ended December 31,
Payor 2008 2007
Medicare 49.0 % 48.3 %
Medicaid 2.0 % 3.7 %
Commercial and other, including self-pay 49.0 % 48.0 %
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Total consolidated net revenue 100.0 % 100.0 %
A significant portion of our net revenue is derived from federal and state governmental healthcare programs, including Medicare and Medicaid, and we expect the net revenue that we receive from the Medicare program as a percentage of total consolidated net revenue will remain significant in future periods. Our payor mix may fluctuate in future periods due to changes in reimbursement, market and industry trends with self-pay patients, and other similar factors.
The Medicare and Medicaid programs are subject to statutory and regulatory
changes, retroactive and prospective rate adjustments, administrative rulings,
court decisions, executive orders and freezes and funding reductions, all of
which may significantly affect our business. In addition, reimbursement is
generally subject to adjustment following audit by third party payors, including
the fiscal intermediaries who administer the Medicare program for Centers for
Medicare and Medicaid Services (CMS). Final determination of amounts due
providers under the Medicare program often takes several years because of such
audits, as well as resulting provider appeals and the application of technical
reimbursement provisions. We believe that adequate provision has been made for
any adjustments that might result from these programs; however, due to the
complexity of laws and regulations governing the Medicare and Medicaid programs,
the manner in which they are interpreted and the other complexities involved in
estimating our net revenue, there is a possibility that recorded estimates will
change by a material amount in the future.
Results of Operations
Three Months Ended December 31, 2008 Compared to Three Months Ended December 31,
2007
Statement of Operations Data. The following table presents our results of
operations in dollars and as a percentage of net revenue for the periods
indicated:
Three Months Ended December 31,
(in thousands except percentages)
Increase/Decrease % of Net Revenue
2008 2007 $ % 2008 2007
Net revenue $ 153,103 $ 146,695 $ 6,408 4.4 % 100.0 % 100.0 %
Operating expenses:
Personnel expense 50,656 50,384 272 0.5 % 33.1 % 34.3 %
Medical supplies
expense 42,651 38,742 3,909 10.1 % 27.9 % 26.4 %
Bad debt expense 11,393 11,285 108 1.0 % 7.4 % 7.7 %
Other operating
expenses 32,235 29,016 3,219 11.1 % 21.1 % 19.8 %
Pre-opening expenses 207 248 (41 ) (16.5 )% 0.1 % 0.2 %
Depreciation 7,835 7,341 494 6.7 % 5.1 % 5.0 %
Amortization 149 127 22 17.3 % 0.1 % 0.1 %
Loss on disposal of
property, equipment
and other assets 73 28 45 (160.7 )% 0.0 % 0.0 %
Income from
operations 7,904 9,524 (1,620 ) (17.0 )% 5.2 % 6.5 %
Other income
(expenses):
Interest expense (2,857 ) (3,931 ) 1,074 27.3 % (1.9 )% (2.7 )%
Loss on early
extinguishment of
debt (6,961 ) - (6,961 ) (100.0 )% (4.5 )% -
Interest and other
income, net 100 1,158 (1,058 ) (91.4 )% 0.1 % 0.8 %
Equity in net
earnings of
unconsolidated
affiliates 2,065 2,025 40 2.0 % 1.3 % 1.4 %
Income from
continuing operations
before minority
interest, income
taxes and
discontinued
operations 251 8,776 (8,525 ) (97.1 )% 0.2 % 6.0 %
Minority interest
share of earnings of
consolidated
subsidiaries (2,776 ) (4,137 ) 1,361 32.9 % (1.8 )% (2.8 )%
(Loss)/income from
continuing operations
before income taxes
and discontinued
operations (2,525 ) 4,639 (7,164 ) (154.4 )% (1.6 )% 3.2 %
Income tax
(benefit)/expense (909 ) 2,348 (3,257 ) (138.7 )% (0.6 )% 1.6 %
(Loss)/income from
continuing operations (1,616 ) 2,291 (3,907 ) (170.5 )% (1.0 )% 1.6 %
Income from
discontinued
operations, net of
taxes 3,862 773 3,089 399.6 % 2.5 % 0.5 %
Net income $ 2,246 $ 3,064 $ (818 ) (26.7 )% 1.5 % 2.1 %
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Three Months Ended December 31,
2008 2007 % Change
Selected Operating Data (a):
Number of hospitals 7 7
Licensed beds (b) 509 421
Staffed and available beds (c) 463 404
Admissions (d) 6,757 7,150 (5.5 )%
Adjusted admissions (e) 9,874 9,829 0.5 %
Patient days (f) 25,181 25,460 (1.1 )%
Adjusted patient days (g) 37,044 35,144 5.4 %
Average length of stay (days) (h) 3.73 3.56 4.8 %
Occupancy (i) 59.1 % 68.5 %
Inpatient catheterization procedures (j) 3,552 4,049 (12.3 )%
Inpatient surgical procedures (k) 2,001 1,947 2.8 %
Hospital net revenue (in thousands except percentages) $ 144,225 $ 137,151 5.2 %
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(a) Selected operating data includes consolidated hospitals in operation as of the end of the period reported in continuing operations but does not include hospitals which are accounted for using the equity method or as discontinued operations in our consolidated financial statements.
(b) Licensed beds represent the number of beds for which the appropriate state agency licenses a facility regardless of whether the beds are actually available for patient use.
(c) Staffed and available beds represent the number of beds that are readily available for patient use at the end of the period.
(d) Admissions represent the number of patients admitted for inpatient treatment.
(e) Adjusted admissions is a general measure of combined inpatient and outpatient volume. We computed adjusted admissions by dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by admissions.
(f) Patient days represent the total number of days of care provided to inpatients.
(g) Adjusted patient days is a general measure of combined inpatient and outpatient volume. We computed adjusted patient days by dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by patient days.
(h) Average length of
stay
(days) represents
the average
number of days
inpatients stay
in our hospitals.
(i) We computed occupancy by dividing patient days by the number of days in the period and then dividing the quotient by the number of staffed and available beds.
(j) Inpatient catheterization procedures represent the number of inpatients with a procedure performed in one of the hospitals' catheterization labs during the period.
(k) Inpatient surgical procedures represent the number of surgical procedures performed on inpatients during the period.
Net Revenue. Our consolidated net revenue increased 4.4% or $6.4 million to
$153.1 million for the first quarter of fiscal 2009 from $146.7 million for the
first quarter of fiscal 2008. Hospital division net revenue increased 5.2% for
the first quarter of fiscal 2009 compared to the same period of fiscal 2008
offset by declines in our Partners and Corporate divisions.
We continue to experience a shift from inpatient to outpatient services as a
result of certain of our payors requiring catheterization procedures to be
performed on an outpatient basis. Our outpatient business continued to grow with
outpatient visits up 16.3% in the first quarter of fiscal 2009 compared to the
first quarter of fiscal 2008.
Our hospital division outpatient net revenue increased 18% in the first
quarter of fiscal 2009 compared to the first quarter of fiscal 2008. This
increase is a result of a 39% increase in non-drug eluting stents, an 18%
increase in drug eluting stents and a 90% increase in other outpatient surgeries
during first quarter of fiscal 2009 compared to the first quarter of fiscal
2008. These increases in the hospital division outpatient net revenue were
offset by a decline in PTCA (or angioplasty) procedures.
Inpatient hospital division net revenue decreased 1.4% in the first quarter
of fiscal 2009 compared to the first quarter of fiscal 2008. We experienced a
56% increase in inpatient net revenue from new service lines at certain of our
hospitals. These services include musculoskeletal and digestive services,which
were 9.3% of our total hospital division net inpatient revenue for the first
quarter of fiscal 2009 versus 5.9% of total hospital net inpatient revenue for
the first quarter of fiscal 2008. We also saw an 11% increase in our hospital
division inpatient net revenue related to open heart procedures. These increases
were offset by decreases in our combined drug-eluting and non-drug eluting stent
business, which was down 11% during the first quarter of fiscal 2009 compared to
the first quarter of fiscal 2008.
Our net revenue was favorably impacted by lower uncompensated care discounts,
which we refer to as charity care discounts, which are recorded as a reduction
to gross revenue. The decrease in uncompensated care discounts reflects a
decrease in the number of patients applying and qualifying for charity
discounts. Charity care discounts were $0.8 million for the first quarter of
fiscal 2009 compared to $1.6 million for the same period of the prior year.
Personnel expense. Personnel expense increased 0.5% to $50.7 million for the
first quarter of fiscal 2009 from $50.4 million for the first quarter of fiscal
2008. The $0.3 million increase in personnel expense was due primarily to the
increase in clinical labor to support the increase in adjusted admissions and
annual merit increases offset by a reduction in stock based compensation
expense. Stock based compensation expense was $1.0 million for the first quarter
of fiscal 2009 compared to $3.7 million for the first quarter of fiscal 2008.
Medical supplies expense. Medical supplies expense increased 10.1% to
$42.7 million for the first quarter of fiscal 2009 from $38.7 million for the
first quarter of fiscal 2008. The 10.1% increase in medical supplies is a result
of a 16% increase in Pacer and AICD volumes and a 33% increase in drug-eluting
stent volume during the first quarter of fiscal 2009 compared to fiscal 2008.
Bad debt expense. Bad debt expense increased 1.0% to $11.4 million for the
first quarter of fiscal 2009 from $11.3 million for the first quarter of fiscal
2008. As a percentage of net revenue, bad debt expense decreased to 7.4% from
7.7% for the quarters ended December 31, 2008 and 2007, respectively. The
decrease is primarily the result of improved collections recognized during the
first quarter of fiscal 2009.
Other operating expenses. Other operating expenses increased 11.1% to
$32.2 million for first quarter of fiscal 2009 from $29.0 million for the first
quarter of fiscal 2008. The increase is attributable to higher costs related to
clinical and nonclinical purchased contract services as a result of increased
adjusted admissions and the demand for clinical services as well as an increase
in costs related to the start-up of a new primary care group at one of our
hospitals. We also experienced an increase in marketing and advertising expenses
to increase exposure in certain markets and an increase in expense for our
self-insured medical malpractice insurance claims.
Interest expense. Interest expense decreased $1.1 million or 27.3% to
$2.8 million for the first quarter of fiscal 2009 from $3.9 million for the
first quarter of fiscal 2008. The $1.1 million decrease in interest expense is
primarily attributable to the overall reduction in our outstanding debt and the
capitalization of interest on our capital expansion projects.
Loss on early extinguishment of debt. During December 2008, we redeemed all
of our outstanding 9 7/8% Senior Notes for $111.2 million, which included the
payment of a repurchase premium of $5.0 million and accrued interest of
$4.2 million. The Senior Notes were redeemed through borrowings under the Credit
Facility and available cash on hand. In addition, we incurred $2.0 million in
expenses related to the write-off of previously incurred financing costs
associated with the Senior Notes.
Interest and other income, net. Interest and other income, net, decreased to
$0.1 million for the first quarter of fiscal 2009 from $1.2 million for the
first quarter of fiscal 2008. The decrease in interest and other income is a
direct result of the approximately $57.8 million decrease in our cash balance
from December 31, 2007 to December 31, 2008 and a reduction in interest earned
on cash balances. Our cash balance has decreased as a result of stock
repurchases during the early half of fiscal 2008 and the repurchase of our 9
7/8% Senior Notes in December 2008.
Minority interest share of earnings of consolidated subsidiaries. Minority
interest share of earnings of consolidated subsidiaries decreased to
$2.7 million for the first quarter of fiscal 2009 from $4.1 million for the
first quarter of fiscal 2008. This $1.4 million decrease was primarily due to
the net decrease in income before minority interest of certain of our
established hospitals. We expect our earnings allocated to minority interests to
fluctuate in future periods as we either recognize disproportionate losses
and/or recoveries thereof through disproportionate profit recognition. For a
more complete discussion of our accounting for minority interests, including the
basis for disproportionate allocation accounting, see Critical Accounting
Policies in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2008.
Income tax (benefit)/expense. Income tax benefit was $0.9 million for the
first quarter of fiscal 2009 compared to an income tax expense of $2.3 million
for the first quarter of fiscal 2008, which represents an effective tax rate of
approximately 36.0% and 50.6% for the respective periods.The higher effective
tax rate for the first quarter of fiscal 2008 was the result of incentive stock
option grants. The expense for stock options is not tax deductible at the time
of grant. The impact of the total stock option grants for the first quarter of
fiscal 2009 was immaterial compared to the first quarter of fiscal 2008 when
grants were issued to our executive officers.
Income from discontinued operations, net of taxes. Income from discontinued
operations, net of taxes, reflects the results of Dayton Heart Hospital and Cape
Cod Cardiology for the first quarter of fiscal 2009 and Dayton Heart Hospital,
Cape Cod Cardiology and the Heart Hospital of Lafayette for the first quarter of
fiscal 2008, respectively. Income from discontinued operations increased to
$3.9 million, net of tax, for the first quarter of fiscal 2009 from
$0.8 million, net of tax, for the first quarter of fiscal 2008. The increase is
the result of the gain recognized on the sale of Cape Cod Cardiology during the
first quarter of fiscal 2009. The gain, net of tax, was approximately
$4.0 million offset by losses for Dayton Heart Hospital related to the write off
of uncollected accounts receivable.
Liquidity and Capital Resources
Working Capital and Cash Flow Activities. Our consolidated working capital
was $94.0 million at December 31, 2008 and $115.1 million at September 30, 2008.
Consolidated working capital decreased primarily as a result of our repayment of
the 9 7/8% Senior Notes in the December 2008, as discussed in Note 6 to the
consolidated financial statements in this report.
At December 31, 2008, $3.2 million of cash was restricted and held in escrow
as required by the city of Kingman, Arizona in conjunction with the Company's
development of the Hualapai Mountain Medical Center. The escrowed funds are to
be released upon our completion of common infrastructure construction projects
affecting the city of Kingman. We anticipate the completion of the related
projects and release of escrowed funds during late 2009 or early 2010.
During the second quarter of fiscal 2007, we were informed by one of our
Medicare fiscal intermediaries that outlier payments received prior to
January 1, 2004 would not be disputed; therefore, we reversed a reserve of
$2.2 million that was originally recorded to account for outlier payments that
had been received in 2003. At December 31, 2008, we continue to carry a reserve
of $9.3 million for outlier payments received in 2004, which is recorded in
current liabilities of discontinued operations.
The cash provided by continuing operations from operating activities was
$18.2 million for the first quarter of fiscal 2009 compared to $0.1 million used
by operating activities for the first quarter of fiscal 2008. The increase in
cash provided by continuing operations is primarily a result of cash used from
continuing operations during the first quarter of fiscal 2008 to pay income tax
liabilities and accrued bonuses related to fiscal 2007 performance to our
employees. We also paid a $5.8 million settlement to the United States
Department of Justice in November 2007 as a result of an investigation of a
clinical trial conducted at one of our hospitals. Our collections on accounts
receivable have increased during the first quarter of fiscal 2009 compared to
the first quarter of fiscal 2008 which had a positive impact on our first
quarter of fiscal 2009 cash flow from operations.
Our investing activities from continuing operations used net cash of
$29.9 million for the first quarter of fiscal 2009 compared to net cash used of
$14.0 million for the first quarter of fiscal 2008. The total cash used for
capital expenditures increased by $15.9 million during the first quarter of
fiscal 2009 compared to the first quarter of fiscal 2008 as a result of the
expansion of our hospital facilities and the construction of the new acute care
hospital in Kingman, Arizona.
Our financing activities from continuing operations used net cash of
$34.0 million for the first quarter of fiscal 2009 compared to net cash used of
$28.5 million for the first quarter of fiscal 2008. The net cash used for
financing activities for the first quarter of fiscal 2009 is primarily a result
of the repayment of the 9 7/8% Senior Notes during December 2008. The repayment
included a $5.0 million repurchase premium as discussed within Note 6 to the
consolidated financial statements.
Capital Expenditures. Expenditures, including accrued but unpaid amounts, for
property and equipment for the first quarter of fiscal years 2009 and 2008 were
$26.2 million and $14.9 million, respectively. Cash paid for property and
equipment was $30.0 million and $14.0 million for the first quarter of fiscal
years 2009 and 2008, respectively. During the first quarter ended December 31,
2008, we continued to develop our hospital in Kingman, Arizona and various
expansion projects at our existing hospitals. The amount of capital expenditures
we incur in future periods will depend largely on the type and size of strategic
investments we make in future periods.
Obligations and Availability of Financing. At December 31, 2008, we had
$132.9 million of outstanding debt, $15.3 million of which was classified as
current. Of the outstanding debt, $86.2 million was outstanding under our Credit
Facility. See Note 6 to the consolidated financial statements in this report.
$46.4 million was outstanding to various lenders to our hospitals, and the
remaining $0.3 million of debt was outstanding to lenders for MedCath Partners'
diagnostic services under capital leases and other miscellaneous indebtedness.
Of the $86.2 million outstanding under our Credit Facility, $11.2 million was
outstanding under the Revolver. The maximum availability under the Revolver is
$85.0 million which is reduced by the aforementioned outstanding borrowings
under the Revolver and outstanding letters of credit totaling $3.5 million.
Covenants related to our long-term debt restrict the payment of dividends and
require the maintenance of specific financial ratios and amounts and periodic
financial reporting. The Company was in compliance with all covenants in the
instruments governing its outstanding debt at December 31, 2008.
At December 31, 2008, we guaranteed either all or a portion of the
obligations of our subsidiary hospitals for equipment and other notes payable.
We provide these guarantees in accordance with the related hospital operating
agreements, and we receive a fee for providing these guarantees from the
hospitals or the physician investors.
We believe that internally generated cash flows and available borrowings
under our Credit Facility will be sufficient to finance our business plan,
capital expenditures and our working capital requirements for the next 12 to
18 months. See Note 6 to the consolidated financial statements in this report.
Intercompany Financing Arrangements. We provide secured real estate,
equipment and working capital financings to our majority-owned hospitals. The
aggregate amount of the intercompany real estate, equipment and working capital
and other loans outstanding as of December 31, 2008 was $279.8 million.
Each intercompany real estate loan is separately documented and secured with
a lien on the borrowing hospital's real estate, building and equipment and
certain other assets. Each intercompany real estate loan typically matures in 2
to 10 years and accrues interest at variable rates based on LIBOR plus an
applicable margin or a fixed rate similar to terms commercially available.
Each intercompany equipment loan is separately documented and secured with a . . .
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