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| MDTH > SEC Filings for MDTH > Form 10-Q on 21-May-2009 | All Recent SEC Filings |
21-May-2009
Quarterly Report
Three Months Ended March 31, Six Months Ended March 31,
Division 2009 2008 2009 2008
Hospital 95.0 % 94.1 % 95.0 % 94.1 %
MedCath Partners 4.9 % 5.5 % 4.9 % 5.5 %
Corporate and other 0.1 % 0.4 % 0.1 % 0.4 %
Net Revenue 100.0 % 100.0 % 100.0 % 100.0 %
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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 March 31, Six Months Ended March 31,
Payor 2009 2008 2009 2008
Medicare 55.7 % 56.6 % 52.7 % 52.3 %
Medicaid 4.2 % 2.9 % 3.1 % 3.3 %
Commercial and other, including self-pay 40.1 % 40.5 % 44.2 % 44.4 %
Total consolidated net revenue 100.0 % 100.0 % 100.0 % 100.0 %
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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 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.
In 2005, CMS began using RACs to detect Medicare overpayments not identified
through existing claims review mechanisms. The RAC program relies on private
auditing firms to examine Medicare claims filed by healthcare providers. Fees to
the RACs are paid on a contingency basis. The RAC program began as a
demonstration project in 2005 in three states (New York, California and Florida)
which was expanded into the three additional states of Arizona, Massachusetts
and South Carolina in July 2007. No RAC audits, however, were initiated at our
Arizona or California hospitals during the demonstration project. The program
was made permanent by the Tax Relief and Health Care Act of 2006 enacted in
December 2006. CMS announced in March 2008 the end of the demonstration project
and the commencement of the permanent program by the expansion of the RAC
program to additional states beginning in the summer and fall 2008 and its plans
to have RACs in place in all 50 states by 2010.
RACs perform post-discharge audits of medical records to identify Medicare
overpayments resulting from incorrect payment amounts, non-covered services,
incorrectly coded services, and duplicate services. CMS has given RACs the
authority to look back at claims up to three years old, provided that the claim
was paid on or after October 1, 2007. Claims identified as overpayments will be
subject to the Medicare appeals process.
The Company has undergone an internal assessment, under the supervision of
its Audit Committee, of certain aspects of its operations and controls. The
Company has completed its internal assessment and determined that there was no
material impact on its consolidated balance sheets, statements of income or
statements of cash flows. Although the Company believes the claims for
reimbursement submitted to the Medicare program by the Company's facilities have
been accurate, the Company is unable to reasonably estimate what the potential
result of future RAC audits or other reimbursement matters could be.
Results of Operations
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
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 March 31,
(in thousands except percentages)
Increase/Decrease % of Net Revenue
2009 2008 $ % 2009 2008
Net revenue $ 158,867 $ 154,200 $ 4,667 3.0 % 100.0 % 100.0 %
Operating expenses:
Personnel expense 52,127 49,156 2,971 6.0 % 32.8 % 31.9 %
Medical supplies expense 43,811 41,656 2,155 5.2 % 27.6 % 27.0 %
Bad debt expense 10,618 10,332 286 2.8 % 6.7 % 6.7 %
Other operating expenses 32,344 30,424 1,920 6.3 % 20.3 % 19.7 %
Pre-opening expenses 380 245 135 55.1 % 0.2 % 0.1 %
Depreciation 7,565 7,689 (124 ) (1.6 )% 4.8 % 5.0 %
Amortization 210 135 75 55.6 % 0.1 % 0.1 %
Loss on disposal of property, equipment and other
assets 91 138 (47 ) 34.1 % 0.1 % 0.1 %
Income from operations 11,721 14,425 (2,704 ) (18.7 )% 7.4 % 9.4 %
Other income (expenses):
Interest expense (1,338 ) (3,864 ) 2,526 65.4 % (0.8 )% (2.5 )%
Gain on early extinguishment of debt 259 - 259 100.0 % 0.2 % -
Interest and other income, net 73 485 (412 ) (84.9 )% 0.0 % 0.3 %
Equity in net earnings of unconsolidated affiliates 2,714 2,181 533 24.4 % 1.7 % 1.4 %
Income from continuing operations before minority
interest, income taxes and discontinued operations 13,429 13,227 202 1.5 % 8.5 % 8.6 %
Minority interest share of earnings of consolidated
subsidiaries (4,639 ) (4,642 ) 3 0.1 % (3.0 )% (3.0 )%
Income from continuing operations before income
taxes and discontinued operations 8,790 8,585 205 2.4 % 5.5 % 5.6 %
Income tax expense 3,372 3,099 273 8.8 % 2.1 % 2.0 %
Income from continuing operations 5,418 5,486 (68 ) (1.2 )% 3.4 % 3.6 %
Income from discontinued operations, net of taxes 164 199 (35 ) (17.6 )% 0.1 % 0.1 %
Net income $ 5,582 $ 5,685 $ (103 ) (1.8 )% 3.5 % 3.7 %
Three Months Ended March 31,
2009 2008 % Change
Selected Operating Data (a):
Number of hospitals 7 7
Licensed beds (b) 509 449
Staffed and available beds (c) 462 433
Admissions (d) 7,052 7,855 (10.2 )%
Adjusted admissions (e) 10,556 10,817 (2.4 )%
Patient days (f) 28,075 29,039 (3.3 )%
Adjusted patient days (g) 42,117 40,247 4.6 %
Average length of stay (days) (h) 3.98 3.70 7.6 %
Occupancy (i) 67.5 % 73.7 %
Inpatient catheterization procedures (j) 3,451 4,225 (18.3 )%
Inpatient surgical procedures (k) 2,087 2,120 (1.6 )%
Hospital net revenue (in thousands except percentages) $ 150,567 $ 144,778 4.0 %
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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 3.0% or $4.7 million to
$158.9 million for the second quarter of fiscal 2009 from $154.2 million for the
second quarter of fiscal 2008. Hospital net revenue increased 4.0%, or
$5.8 million, for the second quarter of fiscal 2009 compared to the same period
of fiscal 2008, offset by declines in our Partners division and Corporate and
other.
Over the past several quarters, our hospitals have experienced a shift in
patient clinical setting from inpatient to outpatient as the result of
advancement in medical technologies and at the direction of certain of our
payors. Total inpatient net revenue equaled 70% of the hospital division's total
net patient revenue for the second quarter of fiscal 2009 compared to
approximately 78% for the second quarter of fiscal 2008.
Inpatient Hospital division net revenue decreased 0.5% in the second quarter
of fiscal 2009 compared to the second quarter of fiscal 2008 and admissions
declined 10% from 7,855 to 7,052. Inpatient net revenue declined for bare metal
stents, vascular procedures, angioplasty procedures, implantable cardioverter
defibrillator ("AICD") procedures, and diagnostic catheterization procedures,
offset by inpatient net revenue increases for new services performed at our
hospitals such as musculoskeletal procedures and increases in net patient
revenue for open heart procedures, drug eluting stent procedures, and other
cardiovascular procedures.
Outpatient Hospital division net revenue increased 42% in the second quarter
of fiscal 2009 compared to the second quarter of fiscal 2008 and outpatient
cases increased 11.2% from 15,656 to 17,412. Outpatient net revenue increased
for all service lines with the exception of angioplasty procedures.
Total net patient revenue related to drug eluting stent procedures and bare
metal stent procedures, regardless of clinical setting, increased $0.9 million,
or 3.1%, for the second quarter of fiscal 2009 compared to the same quarter of
fiscal 2008.
Personnel expense. Personnel expense increased 6.0% to $52.1 million for the
second quarter of fiscal 2009 from $49.1 million for the second quarter of
fiscal 2008. The $3.0 million increase in personnel expense was due primarily to
the increase in clinical labor to support increased volumes at the hospitals,
annual merit increases, and an increase in stock based compensation. Stock based
compensation expense was $0.8 million for the second quarter of fiscal 2009
compared to $0.2 million for the second quarter of fiscal 2008. The increase in
stock based compensation expense was due to the issuance of restricted shares to
certain employees which vest 50% over a three year period and 50% over a three
year period based on certain performance criteria and the issuance of restricted
stock units to directors of the Company which vested immediately, but have
certain sale restrictions.
Medical supplies expense. Medical supplies expense increased 5.2% to
$43.8 million for the second quarter of fiscal 2009 from $41.7 million for the
second quarter of fiscal 2008. The $2.1 million increase in medical supplies is
a result of an 8.6% increase in pacemaker volume and a 29.8% increase in
outpatient surgeries during the second quarter of fiscal 2009 compared to fiscal
2008. In addition, our length of stay and utilization of units per case
increased at one of our hospitals. As length of stay increases, the chargeable
supplies and pharmacy costs increase accordingly.
Bad debt expense. Bad debt expense increased 2.8% to $10.6 million for the
second quarter of fiscal 2009 from $10.3 million for the second quarter of
fiscal 2008. As a percentage of net revenue, bad debt expense remained
relatively flat at 6.7% for the quarters ended March 31, 2009 and 2008,
respectively. As noted above, our total uncompensated care including charity
care and bad debt expense was 8.3% for the second quarter of fiscal 2009
compared to 10.4% for the second quarter of fiscal 2008. The decrease in total
uncompensated care is a result of the continued improvement in collections and a
$0.9 million reduction in self-pay patient net revenue during the second quarter
of fiscal 2009 compared to the second quarter of fiscal 2008.
Other operating expenses. Other operating expenses increased 6.3% to
$32.3 million for the second quarter of fiscal 2009 from $30.4 million for the
second quarter of fiscal 2008. The increase is attributable to higher costs
related to clinical and nonclinical purchased contract services as a result of a
4.5% increase in emergency department visits, an increase in lab contract fees
and 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 medical malpractice
insurance due to specific case reserves and lower than average payments on
outstanding claims during the quarter.
Interest expense. Interest expense decreased $2.5 million or 65.4% to
$1.3 million for the second quarter of fiscal 2009 from $3.8 million for the
second quarter of fiscal 2008. The $2.5 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. Capitalized
interest was $0.8 million for the second quarter of fiscal 2009 compared to
$0.2 million for the second quarter of fiscal 2008.
Interest and other income, net. Interest and other income, net, decreased to
$0.1 million for the second quarter of fiscal 2009 from $0.5 million for the
second quarter of fiscal 2008. The decrease in interest and other income is a
direct result of the approximately $42.3 million decrease in our cash balance
from March 31, 2008 to March 31, 2009 which resulted in a reduction in interest
earned on cash balances. Our cash balance has decreased as a result of the
repurchase of our 9 7/8% Senior Notes during December 2008.
Minority interest share of earnings of consolidated subsidiaries. Minority
interest share of earnings of consolidated subsidiaries remained flat at
$4.6 million for the second quarter of fiscal 2009 and the second quarter of
fiscal 2008. 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 expense was $3.4 million for the
second quarter of fiscal 2009 compared to $3.1 million for the second quarter of
fiscal 2008, which represents an effective tax rate of approximately 38.4% and
36.1% for the respective periods. The 38.4% rate for the second quarter of
fiscal 2009 is the approximate effective rate we would expect to incur absent
any one time permanent or non-recurring items during the reporting period.
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 second quarter of fiscal 2009 and Dayton Heart Hospital,
Cape Cod Cardiology and the Heart Hospital of Lafayette for the second quarter
of fiscal 2008, respectively. Income from discontinued operations remained
consistent at $0.2 million, net of tax, for the second quarter of fiscal 2009
and the second quarter of fiscal 2008. Income from discontinued operations
during the second quarter of fiscal 2009 was from the reversal of previous
charges, whereas the income from discontinued operations from same quarter of
fiscal 2008 was related to operating income from Cape Cod Cardiology offset by
losses at Dayton Heart Hospital.
Six months ended March 31, 2009 Compared to Six Months Ended March 31, 2008 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:
Six Months Ended March 31,
(in thousands except percentages)
Increase/Decrease % of Net Revenue
2009 2008 $ % 2009 2008
Net revenue $ 311,970 $ 300,895 $ 11,075 3.7 % 100.0 % 100.0 %
Operating expenses:
Personnel expense 102,783 99,540 3,243 3.3 % 32.9 % 33.1 %
Medical supplies expense 86,462 80,398 6,064 7.5 % 27.7 % 26.7 %
Bad debt expense 22,011 21,617 394 1.8 % 7.1 % 7.2 %
Other operating expenses 64,580 59,442 5,138 8.6 % 20.7 % 19.7 %
Pre-opening expenses 587 493 94 19.1 % 0.2 % 0.1 %
Depreciation 15,400 15,030 370 2.5 % 4.9 % 5.0 %
Amortization 359 262 97 37.0 % 0.1 % 0.1 %
Loss on disposal of property, equipment and other
assets 164 166 (2 ) 1.2 % 0.1 % 0.1 %
Income from operations 19,624 23,947 (4,323 ) (18.1 )% 6.3 % 8.0 %
Other income (expenses):
Interest expense (4,194 ) (7,796 ) 3,602 46.2 % (1.3 )% (2.6 )%
Loss on early extinguishment of debt (6,702 ) - (6,702 ) (100.0 )% (2.1 )% -
Interest and other income, net 173 1,646 (1,473 ) (89.5 )% - 0.5 %
Equity in net earnings of unconsolidated affiliates 4,779 4,206 573 13.6 % 1.5 % 1.4 %
Income from continuing operations before minority
interest, income taxes and discontinued operations 13,680 22,003 (8,323 ) (37.8 )% 4.4 % 7.3 %
Minority interest share of earnings of consolidated
subsidiaries (7,415 ) (8,779 ) 1,364 15.5 % (2.4 )% (2.9 )%
Income from continuing operations before income
taxes and discontinued operations 6,265 13,224 (6,959 ) (52.6 )% 2.0 % 4.4 %
Income tax expense 2,463 5,448 (2,985 ) (54.8 )% 0.8 % 1.8 %
. . .
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