National Medical to Sell 9 Hospitals, Restructure Firm
With industry and government cost-cutting measures siphoning away patients and profits, National Medical Enterprises Inc. said Tuesday that it will sell nine hospitals and undergo a major corporate restructuring to improve its sagging bottom line.
Even so, the nation’s second-largest health-care company may post the first quarterly loss in its history when results for the three months ended May 31 are announced sometime later this month, said Richard K. Eamer, chairman and chief executive of National Medical Enterprises.
“We may break even or post a small loss,” Eamer explained. “It would be our first loss, but we’ll be a stronger company for it.”
NME has cut its annual payroll by about $6 million by lowering salaries and laying off more than 120 workers. It also has closed a few industrial health clinics in Southern California, discontinued a health-care equipment contracting business with Abu Dhabi and Saudi Arabia and is negotiating to sell its AV-MED health maintenance organization headquartered in Miami.
The sale of the nine acute-care hospitals for an estimated $120 million is part of a company plan to reduce the number of facilities that it owns to 33 or 32 by 1988, the company said. NME currently owns or leases 50 acute-care hospitals across the country and operates 49 others.
The austerity moves are designed to de-emphasize the company’s interests in regular hospitals, officials said. Instead, NME plans to concentrate on nursing homes, psychiatric and long-term care units--sectors that have not yet been hard hit by government and private cost cutting.
Over the last few years, Los Angeles-based NME has enjoyed an enviable reputation as one of the nation’s best-managed health-care companies. It rolled up double-digit earnings increases as it ambitiously expanded into health-care fields ranging from insurance to medical equipment.
In addition to its hospitals, the company operates 11 rehabilitation hospitals, 391 nursing homes, 38 psychiatric hospitals and 11 substance-abuse treatment centers. It also operates medical equipment stores, pharmacies and dialysis centers.
“They always thought they were diversified enough that cost containment wouldn’t hurt them,” said Kenneth Abramowitz, a health-care analyst at Sanford C. Bernstein & Co. in New York. “But like everybody else, they have had problems adjusting to the new environment.”
Just three months ago, for instance, American Medical International of Beverly Hills reported its first quarterly loss in 25 years as a public company. Meanwhile, first-quarter profits at Hospital Corp. of America, the nation’s largest health-care company, fell 9.7% due to lower hospital occupancy rates and higher costs.
Hospital chains in the $400-billion-a-year health-care industry have been hurt by alternative health-care providers such as HMOs and preferred provider organizations. These organizations, which promise lower-cost health care for a prepaid fee, have grown rapidly and siphoned away patients from hospitals and doctors.
In addition, recent changes in the way that medical payments are made to hospitals under the federal Medicare program encourage hospitals to treat patients quickly and discharge them rapidly, thus leaving more empty hospital beds.
Nationally, for example, hospital occupancy rates have fallen to 64% in 1985 from 76% in 1981, according to the American Hospital Assn.
Of the nine hospitals being sold, Community Health Systems of Houston agreed to purchase five of them and assume the lease on a sixth, NME said.
Dallas-based Forum Health Investors will buy Lincoln West Medical Center in Chicago and Metropolitan Hospital in Chattanooga, Tenn. NME will sell its Ojai Valley Community Hospital in Ojai to Community Memorial Hospital of Ventura.
However, at least one analyst believes that the moves may not be enough to save NME from the new, austere health-care environment.
“Their hospital occupancy rate has fallen to around 40%” from about 53% in 1984, said Steven B. Reid, director of research at Wedbush, Noble, Cooke Inc. “Frankly, I don’t see any end in sight for the decline. I think you’re going to see another mega-merger with NME and Hospital Corp. or Humana Inc. or AMI.”
NATIONAL MEDICAL ENTERPRISES AT A GLANCE
The company, with headquarters in Los Angeles, owns or leases 50 hospitals throughout the United States and manages an additional 49 acute-care facilities. It also operates 11 rehabilitation hospitals, 391 nursing homes, 38 psychiatric hospitals and 11 substance-abuse treatment centers. It also operates a health maintenance organization in Florida, medical equipment stores, pharmacies and dialysis centers.
Year ended May 31
1985 1984 1983 Revenue (in billions): $3.0 $2.6 $2.2 Net Income (in millions): $149 $124 $96
Assets: $898.4 million as of Feb. 28.
Employees: 80,000
Shares outstanding: 78.7 million
12-month price range (NYSE): $18.75 -- $32.87 1/2
Tuesday close: $24.50, up $1.25
