User Report

FINANCIAL STATEMENT ANALYSIS: HEALTH MANAGEMENT ASSOCIATES

LA TONIA STEWART

DR. LAURA FORBES

HSA 525

AUGUST 4, 2013

FINANCIAL STATEMENT ANALYSIS: HEALTH MANAGEMENT ASSOCIATES

Based on your review of the financial statements, suggest a key insight about the financial health of the company. Speculate on the likely reaction to the financial statements from various stakeholder groups (employee, investors, shareholders). Provide support for your rationale.

Based on review of recent financial statements, Health Management Associates is in a precarious financial position due to its current legal woes and rising bad debt. The organization has been served with subpoenas by the Justice Department, the Department of Health and Human Services and Office of the Inspector General requesting records pertaining to a software program used by ED doctors and records regarding emergency department management In December 2012, CBS news magazine “60 Minutes” aired a story that featured interviews with several former HMA employees stating there was pressure from the company’s hospitals to admit patients from emergency rooms in order to maximize profits (Britt, 2012). HMA’s former compliance director, Paul Meyer, alleged HMA’s fraudulent practices in regard to Medicare and Medicaid patients was worthy of government investigation. In addition to Meyer’s claims, a hospital administrator, an executive vice-president and two doctors charged HMA with inappropriate systemic hospital admissions by ordering unnecessary tests and admitting patients without cause in an effort to increase revenue. Physicians were pressured to meet admissions quotas set by HMA or risk being reprimanded and even terminated. The former employees allege that HMA set an overall benchmark of 20 percent admission rate for emergency department patients and a 50 percent admission benchmark for patients 65 and older. As a result of the December 2, 2012 “60 Minutes” investigative report, HMA shares fell sharply on Monday, December 3, 2012 by 5.09 percent to $7.55.

As of July 30, 2013 HMA is now being acquired by Community Health Systems Inc. for $3.9 billion dollars, eventually totaling $7.6 billion dollars (including assumed debt) in a deal that HMA investors feel is motivated by the current hardships the company is facing. HMA stockholders and federal regulators have to still clear the deal even though the boards of directors of both organizations have approved the merger. After the deal was disclosed on Tuesday, HMA stocks fell 11 percent to $13.30 in trading, down $1.62 from its Monday price of $14.92 per share. HMA also stated on Tuesday that its second quarter earnings of 10 to 11 cents per share on $ 1.46 billion of revenue would fall well below Wall Street predictions (Murphy, 2013).

Identify the current industry trend that has the most significant impact on your chosen organization’s financial performance. Indicate the trend’s impact on the financial performance of the organization. As the CFO, suggest at least one (1) way that you might minimize the impact of the trend on the organization.

The current industry trend impacting the financial performance of HMA is declining hospital admissions, as many patients have chosen to cut back or delay any elective surgeries and procedures. Due to the recession that began in December 2007, many people lost health insurance as a result of job losses and declining employer based health care coverage benefits. Added to the mix are an ever increasing pool of uninsured patients, uncollectible revenue (bad debt) and drastic cuts to federal funding on which many hospitals rely. As CFO, I believe the recent merger with Community Health Systems is a step in the right direction as it will create a larger hospital chain, with a heavy presence in the South that will benefit from the federal healthcare overhaul. Beginning in 2014, the Affordable Care Act (ACA) will help ease the financial burdens many hospitals face when providing charity care for indigent patients. The ACA will provide the uninsured with income-based tax credits so they can purchase insurance coverage as well as expanding coverage for Medicaid programs in many states (USA.gov).

As the CFO, suggest one (1) key strategy that you might use in order to improve the financial performance of the organization. Recommend an approach to implement the suggested strategy. Provide support for your recommendation.

As previously stated, as CFO I believe merging with Community Health Systems is but one positive step in the right direction with regard to improving the financial future of the organization. Going forward, the merger would be an optimal time for the newly formed organization to foster a culture of improvement, openness, support and learning if it is going to survive. As CFO, it is my responsibility to work with senior leadership to set and implement clear internal control initiatives that will involve oversight, authorization and ethical leadership within the organization. There definitely has to be transparency within the organization with regard to policies and procedures if there is to be an environment of trust among employees at all levels. One key concept to remember here is leaders model the way. This means that leadership must take ownership of always setting the example, being accountable, demonstrating confidence, and providing clarity if they are to be taken seriously.

REFERENCES

About us: Health Management Associates. Retrieved August 3, 2014 from http://www.healthmanagement.com/

Britt, R (2012, December 3). HMA feels fallout from “60 Minutes” story. The Wall Street Journal.

De La Merced, M.J. (2013, July 30). Community Health agrees to buy H.M.A. for $3.6 billion. The New York Times.

How does the Affordable Care Act help people like me? Retrieved August 4, 2013 from https://www.healthcare.gov/how-does-the-affordable-care-act-affect-me/

Kelly, S. and Humer, C. (2013, July 30), Update 4-Community Health faces investor fight in $3.9 bln HMA deal. Reuters Edition U.S.

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