Weisman Proclaims AMI ‘Surgery’ a Success and Says Outlook Is Good
Trained as a lawyer, American Medical International President Walter L. Weisman never thought he would be called upon to be a surgeon--until 18 months ago, when industry cost-cutting forced him to put his hospital chain under the budget knife.
But after closing AMI’s national insurance operation, selling off 15 acute care hospitals, eliminating more than 2,000 jobs and fighting off a recent takeover challenge, Weisman is proclaiming to Wall Street analysts and investors that his fiscal operation has been a success.
“In a figurative sense I had to perform, in my judgment, a lobotomy on our people so that they could. . .recognize that they were in a competitive world, where. . .there was no safety net as there had been under the old Medicare reimbursement system,” said Weisman, who turns 52 next month. “We’ve made substantial improvement. This is a very cheerful time for me.”
The improved outlook at Beverly Hills-based AMI, which owns or manages 89 for-profit hospitals across the country, comes at a time when recent federal studies have found that profits earned by the nation’s 5,700 hospitals for the treatment of some 31 million Medicare patients have been much higher than expected.
Financial Drain
But Weisman views Medicare, and the frugality it has spawned, as more of a financial drain on his hospitals than a profit center.
“While conceptually there is the ability to generate a surplus or a profit from a Medicare patient,” Weisman said, “it is a very difficult thing to achieve in practice and in my opinion most hospitals are not doing much more than holding their own with the Medicare patient. . . . We are dealing with sicker patients today; profitability is very difficult to achieve.”
For the fiscal year ended Aug. 31, 1986, AMI reported a net loss of $97 million on revenue of $2.5 billion. The loss was blamed on financial problems AMI suffered in adjusting to the more frugal Medicare reimbursement system.
But AMI also was hurt by years of ambitious expansion that took it far afield of its hospital roots into areas as varied as selling group health insurance, renting out wheelchairs and oxygen tanks through a home-health subsidiary and running health maintenance organizations. Since then AMI has sold those units and focused on operating general care hospitals.
Picture Brightened
Since that decision, the picture has brightened. AMI reported net income of $28 million on record revenue of $950 million for the second quarter ended Feb. 28, compared to a net loss of $82.2 million on revenue of $862 million for the same period in fiscal 1986.
However, analysts say further progress will depend on whether falling hospital occupancy rates level off and whether AMI can squeeze more profit out of each patient stay.
“It looks like they are recovering but how long it lasts depends on how successful they are in controlling their costs and raising rates,” said Kenneth S. Abramowitz, a health-care analyst with the New York investment house Sanford C. Bernstein.
“If I were Walter Weisman, I would probably be doing what he is doing and establish a premium hospital chain,” said Larry N. Feinberg, a health-care analyst at Drexel Burnham Lambert Inc. “As to whether I, as an investor, would want to participate in a crummy industry is another story.” The outlook for the $425-billion-a-year health-care industry, Feinberg said, “is pretty bleak.”
Weisman is betting that low overhead and an emphasis on quality can keep AMI profitable, boost the company’s stock price and keep at bay what Weisman called such “preposterous” takeover offers as the $1.19-billion bid made by Pesch and Co., a health-care information systems and real estate concern headed by Chicago physician LeRoy A. Pesch.
Still, the Pesch offer, Weisman said, gave AMI “a rallying point.” But, Weisman mused, “one of the exasperating aspects of this is, you have to spend money . . . in terms of lawyers and investment bankers” while Pesch “. . . has only paid 22 cents for a stamp.”
Pesch was unavailable for comment, but he has argued that stockholders would benefit from a restructuring of AMI, whose assets, Pesch believes, are undervalued.
Yet despite improving its balance sheet by paring costs, AMI continues to suffer big losses in some areas. In March, an AMI hospital in Houston devoted to research on acquired immune deficiency syndrome began refusing to admit indigent AIDS patients because the costs were far greater than had been expected.
“When you have a situation where you are losing several hundred thousand dollars a month you have to do something about that,” said AMI spokesman Peter Dowd. “Otherwise all the profits you make at other hospitals you are losing . . . in Houston.”
Large investors, such as the Bass family of Fort Worth, Tex., which controls 11.4% of AMI’s outstanding shares, appear to support AMI management.
“I think in this environment someone in my position should learn to expect anything,” Weisman said, when asked about any possible future takeover bids. “So, while I don’t expect any takeover offers from Pesch or anyone else, if something happened I would not find it particularly surprising.”
