Effects of U.S. Probe Hit Columbia / HCA

From Associated Press

Columbia/HCA Healthcare Corp. is showing the strain of operating under a management shake-up and a federal fraud investigation.

After routinely churning out 15% profit increases, the nation's largest for-profit hospital chain said Tuesday that it expects third-quarter earnings to decline. The lower estimate is due to management restructuring and a government investigation of alleged Medicaid fraud that Columbia put at about $60 million for the quarter.

The news prompted a stock selloff that brought Columbia shares to the lowest point in two years.

In a more disturbing sign to securities analysts, hospital admissions declined by about 1% in August, suggesting that the company may be damaged in the eyes of consumers.

"It will take the new management team time to correct the problems of the company," said Sheryl Skolnick, an analyst with Robertson, Stephens & Co. "Common sense would tell you that if a company's been portrayed in a negative light and you're going to trust them to deliver your baby or perform your heart surgery, you might think twice about it."

Officials at the Nashville-based company acknowledged that doctors appeared to be referring patients to competing hospitals, and patients may be avoiding Columbia.

Analysts who attended a company briefing Tuesday said Columbia's new managers revealed problems much deeper than it had disclosed before, including slow collections that led to more bad debt than necessary.

"By and large what I heard today was a story about a company that had not done a good job of integrating acquisitions thoroughly, that had grown too fast . . . and it shows," Skolnick said. "That's very different than what we were told in the past year or two by the company."

Management estimated that revenue in the quarter ending Sept. 30 will be the same or slightly lower than a year ago, and that earnings per share will be reduced to 20 cents to 25 cents, compared with earnings of 46 cents a year earlier.

Columbia shares plunged to the lowest level since July 1995 on the news, dropping $3.69 before ending down $3.06 to close at $29.63 on the New York Stock Exchange. The stock has lost one-third of its value since its Feb. 18 high of $44.88.

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