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| MDTH > SEC Filings for MDTH > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-2009
Quarterly Report
Three Months Ended June 30, Nine Months Ended June 30,
Division 2009 2008 2009 2008
Hospital 95.0 % 94.4 % 95.0 % 94.2 %
MedCath Partners 4.9 % 5.2 % 4.9 % 5.4 %
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 June 30, Nine Months Ended June 30,
Payor 2009 2008 2009 2008
Medicare 49.7 % 51.2 % 51.9 % 52.0 %
Medicaid 1.9 % 2.8 % 3.0 % 3.1 %
Commercial and other, including self-pay 48.4 % 46.0 % 45.1 % 44.9 %
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, i.e. the 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.
Even though 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 June 30, 2009 Compared to Three Months Ended June 30, 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 June 30,
(in thousands except percentages)
Increase/Decrease % of Net Revenue
2009 2008 $ % 2009 2008
Net revenue $ 150,904 $ 154,273 $ (3,369 ) (2.2 )% 100.0 % 100.0 %
Operating expenses:
Personnel expense 50,862 50,520 342 0.7 % 33.7 % 32.8 %
Medical supplies
expense 44,995 42,757 2,238 5.2 % 29.8 % 27.7 %
Bad debt expense 12,547 10,235 2,312 22.6 % 8.3 % 6.6 %
Other operating
expenses 31,441 29,555 1,886 6.4 % 20.8 % 19.2 %
Pre-opening expenses 754 149 605 406.0 % 0.5 % 0.1 %
Depreciation 7,858 7,505 353 4.7 % 5.2 % 4.9 %
Amortization 230 149 81 54.4 % 0.2 % 0.1 %
(Gain) loss on
disposal of property,
equipment and other
assets (26 ) 225 (251 ) 111.6 % (0.0 )% 0.1 %
Income from
operations 2,243 13,178 (10,935 ) (83.0 )% 1.5 % 8.5 %
Other income
(expenses):
Interest expense (1,151 ) (3,862 ) 2,711 70.2 % (0.8 )% (2.5 )%
Interest and other
income, net 52 284 (232 ) (81.7 )% 0.0 % 0.2 %
Equity in net
earnings of
unconsolidated
affiliates 2,265 2,636 (371 ) (14.1 )% 1.5 % 1.7 %
Income from
continuing operations
before minority
interest, income
taxes and
discontinued
operations 3,409 12,236 (8,827 ) (72.1 )% 2.2 % 7.9 %
Minority interest
share of earnings of
consolidated
subsidiaries (2,287 ) (3,865 ) 1,578 40.8 % (1.5 )% (2.5 )%
Income from
continuing operations
before income taxes
and discontinued
operations 1,122 8,371 (7,249 ) (86.6 )% 0.7 % 5.4 %
Income tax expense 536 3,469 (2,933 ) (84.5 )% 0.3 % 2.2 %
Income from
continuing operations 586 4,902 (4,316 ) (88.0 )% 0.4 % 3.2 %
(Loss) income from
discontinued
operations, net of
taxes (90 ) 6,870 (6,960 ) (101.3 )% (0.1 )% 4.4 %
Net income $ 496 $ 11,772 $ (11,276 ) (95.8 )% 0.3 % 7.6 %
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Three Months Ended June 30,
2009 2008% Change
Selected Operating Data (a):
Number of hospitals 7 7
Licensed beds (b) 588 449
Staffed and available beds (c) 542 449
Admissions (d) 6,352 7,384 (14.0 )%
Adjusted admissions (e) 10,284 10,341 (0.6 )%
Patient days (f) 25,482 27,132 (6.1 )%
Adjusted patient days (g) 41,174 38,105 8.1 %
Average length of stay (days) (h) 4.01 3.67 9.3 %
Occupancy (i) 51.7 % 66.4 %
Inpatient catheterization procedures (j) 3,071 3,961 (22.5 )%
Inpatient surgical procedures (k) 2,045 2,260 (9.5 )%
Hospital net revenue (in thousands except percentages) $ 141,665 $ 144,676 (2.1 )%
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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 decreased 2.2% or $3.4 million to
$150.9 million for the third quarter of fiscal 2009 from $154.3 million for the
third quarter of fiscal 2008. Hospital Division net revenue decreased 2.1%, or
$3.0 million, for the third quarter of fiscal 2009 compared to the same period
of fiscal 2008, in addition to declines in our MedCath 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 was 66% of the Hospital Division's total net
patient revenue for the third quarter of fiscal 2009 compared to approximately
74% for the third quarter of fiscal 2008.
Inpatient Hospital division net revenue decreased 13% in the third quarter of
fiscal 2009 compared to the third quarter of fiscal 2008 and admissions declined
14% from 7,384 to 6,352. Inpatient net revenue declined for all of our core
cardiovascular procedures with the exception of open heart procedures, which
increased $0.9 million for the third quarter of fiscal 2009 compared to the
third quarter of fiscal 2008. The overall decline in net patient revenue from
our core cardiovascular procedures was partially offset by inpatient net revenue
increases for new services performed at our hospitals such as digestive
procedures.
Outpatient Hospital division net revenue increased 26% in the third quarter
of fiscal 2009 compared to the third quarter of fiscal 2008 and outpatient cases
increased 13.1% from 16,183 to 18,302. 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, decreased $1.4 million,
or 5.2%, for the third quarter of fiscal 2009 compared to the same quarter of
fiscal 2008.
Net revenue for the third quarter of fiscal 2008 included charity care
deductions of $4.2 million compared to charity care deductions of $1.0 million
for fiscal 2009. The reduction is the result of fewer patients applying and
qualifying for charity discounts during the third quarter of fiscal 2009
compared to the same period of the prior year.
Net revenue for the third quarter of fiscal 2009 was reduced by $3.1 million
as a result of a reduction in the estimated amount of Medicare Disproportionate
Share Hospital ("DSH") payments certain hospitals are eligible for in prior
periods. The primary method for a hospital to qualify for Medicare DSH
reimbursement is based on a statutory formula that utilizes the percentage of
inpatient days attributable to patients eligible for Medicaid, but not eligible
for Medicare Part A, and a base formula called the Supplemental Security Income
("SSI") percentage, which is released annually by the CMS. Based on the updated
SSI percentage provided by CMS during June, 2009, we determined that four
hospitals that we previously determined were eligible for DSH payments in fiscal
2007 and fiscal 2008 would either no longer be eligible for such payments or
would be eligible for less payment than initially estimated.
Personnel expense. Personnel expense increased 0.7% to $50.9 million for the
third quarter of fiscal 2009 from $50.5 million for the third quarter of fiscal
2008. The $0.4 million increase in personnel expense was due primarily to annual
merit increases and a corresponding increase in benefits offset by a
$1.3 million reduction in stock compensation expense. Stock based compensation
expense was $0.2 million for the third quarter of fiscal 2009 compared to
$1.5 million for the third quarter of fiscal 2008. The stock based compensation
expense for the third quarter of fiscal 2009 was recorded based on a vesting
schedule related to the issuance of restricted shares to certain employees which
vest over a three year period or vest 50% over a three year period and 50% over
the same three year period if certain performance criteria are satisfied. The
stock based compensation expense for the third quarter of fiscal 2008 was based
on the issuance of stock options which vested immediately.
Medical supplies expense. Medical supplies expense increased 5.2% to
$45.0 million for the third quarter of fiscal 2009 from $42.8 million for the
third quarter of fiscal 2008. The $2.2 million increase in medical supplies is a
result of a 4.1% increase in open heart cases, a 32.1% increase in
musculoskeletal cases and a 42.6% increase in the usage of drug eluting stents
offset by a 20.6% decrease in the usage of bare metal stents. In addition, our
average length of stay increased 9.3%, which resulted in a 11.3% increase in
non-chargeable supply expense.
Bad debt expense. Bad debt expense increased 22.6% to $12.5 million for the
third quarter of fiscal 2009 from $10.2 million for the third quarter of fiscal
2008. As a percentage of net revenue, bad debt expense increased to 8.3% for the
third quarter of fiscal 2009 as compared to 6.6% for the comparable period of
fiscal 2008. Our total uncompensated care including charity care and bad debt
expense was 9.5% of total net patient hospital revenue for the third quarter of
fiscal 2009 compared to 9.6% of total net patient revenue for the third quarter
of fiscal 2008. The total number of patients which applied and qualified for
charity care reduced during third quarter of fiscal 2009 compared to the third
quarter of fiscal 2008. We reported $3.2 million more charity deductions to net
revenue during the third quarter of fiscal 2008 when compared to the third
quarter of fiscal 2009.
Other operating expenses. Other operating expenses increased 6.4% to
$31.4 million for the third quarter of fiscal 2009 from $29.6 million for the
third quarter of fiscal 2008. The increase is attributable to the following:
• $1.1 million increase in professional fees associated with an internal
assessment of certain controls and procedures completed during the
quarter.
• $0.8 million increase in penalty expense for the anticipated settlement of regulatory claims at two of our hospitals related to the identification, return and self-reporting of $0.7 million in reimbursement for certain procedures performed at those hospitals in prior fiscal years.
• $0.4 million increase in severance payments.
The above increases were offset by a decrease in our medical malpractice
insurance expense of $0.6 million for the third quarter of fiscal 2009 compared
to the third quarter of fiscal 2008.
Interest expense. Interest expense decreased $2.7 million or 70.2% to
$1.2 million for the third quarter of fiscal 2009 from $3.9 million for the
third quarter of fiscal 2008. The $2.7 million decrease in interest expense is
primarily attributable to the overall reduction in our outstanding debt,
interest rates on our outstanding debt, and the capitalization of interest on
our capital expansion projects. Capitalized interest was $0.8 million for the
third quarter of fiscal 2009 compared to $0.4 million for the third quarter of
fiscal 2008.
Interest and other income. Interest and other income decreased to
$0.1 million for the third quarter of fiscal 2009 from $0.3 million for the
third quarter of fiscal 2008. The decrease in interest and other income is a
direct result of the approximately $77.9 million decrease in our cash and cash
equivalent balance from June 30, 2008 to June 30, 2009, which resulted in a
reduction in interest earned on cash balances.
Minority interest share of earnings of consolidated subsidiaries. Minority
interest share of earnings of consolidated subsidiaries decreased to
$2.3 million for the first three months of fiscal 2009 from $3.9 million for the
comparable period 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 expense. Income tax expense was $0.5 million for the third quarter
of fiscal 2009 compared to $3.5 million for the third quarter of fiscal 2008,
which represents an effective tax rate of approximately 47.8% and 41.4% for the
respective periods. The 47.8% rate for the third quarter of fiscal 2009 is the
effective rate created due to permanent, non-recurring items during the
reporting period. The income tax rate for the third quarter of fiscal 2008 was
negatively impacted by the write-off goodwill based on the valuation of one of
our hospitals we subsequently sold. The write-off of goodwill is a
non-deductible tax expense in the period the write-off occurs.
(Loss) income from discontinued operations, net of taxes. (Loss) income from
discontinued operations, net of taxes, reflects the results of Dayton Heart
Hospital, Cape Cod Cardiology, and the Heart Hospital of Lafayette for the third
quarter of fiscal 2009 and fiscal 2008. Income from discontinued operations
decreased to a loss of $0.1 million, net of tax, for the third quarter of fiscal
2009 from income of $6.9 million, net of tax, for the comparable period of
fiscal 2008. Loss from discontinued operations during the third quarter of
fiscal 2009 related to continued payments of liabilities associated with the
divested facilities, 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.
Nine months ended June 30, 2009 Compared to Nine Months Ended June 30, 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:
Nine Months Ended June 30,
(in thousands except percentages)
Increase/Decrease % of Net Revenue
2009 2008 $ % 2009 2008
Net revenue $ 462,874 $ 455,168 $ 7,706 1.7 % 100.0 % 100.0 %
Operating expenses:
Personnel expense 153,644 150,060 3,584 2.4 % 33.2 % 33.0 %
Medical supplies
expense 131,457 123,155 8,302 6.7 % 28.4 % 27.0 %
Bad debt expense 34,558 31,852 2,706 8.5 % 7.5 % 7.0 %
Other operating
expenses 96,022 88,996 7,026 7.9 % 20.8 % 19.5 %
Pre-opening expenses 1,340 643 697 108.4 % 0.3 % 0.1 %
Depreciation 23,258 22,535 723 3.2 % 5.0 % 5.0 %
Amortization 589 411 178 43.3 % 0.1 % 0.1 %
Loss on disposal of
property, equipment
and other assets 138 391 (253 ) 64.7 % 0.0 % 0.1 %
Income from
operations 21,868 37,125 (15,257 ) (41.1 )% 4.7 % 8.2 %
Other income
(expenses):
Interest expense (5,339 ) (11,658 ) 6,319 54.2 % (1.1 )% (2.6 )%
Loss on early
extinguishment of
debt (6,702 ) - (6,702 ) (100.0 )% (1.4 )% -
Interest and other
income, net 218 1,930 (1,712 ) (88.7 )% - 0.4 %
Equity in net
earnings of
unconsolidated
affiliates 7,044 6,842 202 3.0 % 1.5 % 1.5 %
Income from
continuing operations
before minority
interest, income
taxes and
discontinued
operations 17,089 34,239 (17,150 ) (50.1 )% 3.7 % 7.5 %
Minority interest
share of earnings of
consolidated
subsidiaries (9,703 ) (12,644 ) 2,941 23.3 % (2.1 )% (2.8 )%
Income from
continuing operations
before income taxes
and discontinued
operations 7,386 21,595 (14,209 ) (65.8 )% 1.6 % 4.7 %
Income tax expense 2,998 8,917 (5,919 ) (66.4 )% 0.7 % 1.9 %
Income from
continuing operations 4,388 12,678 (8,290 ) (65.4 )% 0.9 % 2.8 %
Income from
discontinued
. . .
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