For anybody that jumped on HRC with me they are getting hammered this morning. Might be a buying opportunity. Sorry I can't post a link to this.
NW
(PR NEWSWIRE) HEALTHSOUTH Tables Spin-Off Proposal, Resumes Share Buyback,
HEALTHSOUTH Tables Spin-Off Proposal, Resumes Share Buyback, Comments on
Operations
BIRMINGHAM, Ala., Sept. 9 /PRNewswire/ -- HEALTHSOUTH Corporation
(NYSE: HRC) today announced that its Board of Directors had tabled
indefinitely its previously announced proposal to divide the company into two
separate public companies through the spin-off of the company's inpatient
operations and also announced that the company would resume purchases under
its previously announced share repurchase program.
"In today's uncertain environment for healthcare providers, we have
determined that HEALTHSOUTH is currently in a better position to weather the
changes by keeping our outstanding group of facilities and our exceptional
management team together as one. While there may still come a time when it is
appropriate to separate these two businesses so that they can grow on their
own, we no longer believe that is the best course right now," said Richard M.
Scrushy, Chairman of the Board and Chief Executive Officer of HEALTHSOUTH.
"While we have worked hard on the spin-off over the last three months, the
complexities involved in structuring the transaction have made it clear that
we will not be able to formulate and execute a final plan in the timeframe
that we had originally anticipated. Further, the current state of the
healthcare capital markets suggests that we might not be able to achieve our
goal of lowering the cost of capital for the two businesses on a stand-alone
basis. We also believe that favorable developments in the likely structure of
the prospective payment system for inpatient rehabilitation may alleviate some
of the concerns relating to the impact of keeping our inpatient and outpatient
businesses together. Taking into account all of these factors, our Board and
management team believe the best strategy is to keep the company together."
Scrushy added, "While our Board of Directors has not ruled out the
possibility of proceeding with a spin-off transaction at a later date, we
believe that our best course of action right now is to focus on making
continuing improvements in our core businesses as a unified team. In the
meantime, we will resume purchases under the $1 billion share buyback program
announced earlier this year. We believe that our stock remains undervalued,
and we expect that many of our senior management team will be buying stock as
well. I currently intend to buy up to $25 million worth of our stock
personally, demonstrating the continued confidence that we have in our
business fundamentals."
Expectations for Third and Fourth Quarters
HEALTHSOUTH also announced that it currently expected its operating
margins for the third and fourth quarters of 1999 to be in a range of 27% to
29%, as opposed to the 30+% levels which the company has historically
experienced and which are reflected in analysts' current estimates. The
company attributed this reduction in margin expectations to changes in volume
and payor mix in its inpatient segment, lower-than-expected same-store volume
growth in its outpatient rehabilitation business, continuing issues with
managed care reimbursement, the effects of changes in government reimbursement
policies, seasonal variations in its surgery center operations, and current
and anticipated increases in costs, among other factors. The company
indicated that, based on current information, it expected cash flow for 1999
to be approximately $1.2 billion.
In discussing these trends and expectations, Scrushy observed,
"HEALTHSOUTH continues to have the best margins in healthcare services and
strong cash flow. While the information currently available to us indicates
that our historical margins are not sustainable in this environment, the
fundamentals of our business remain strong, with excellent cash flow from
operations and one of the strongest balance sheets in the industry. We
believe that we are near the bottom of the recent negative trends and that our
fundamental strengths put us in an excellent position to build new value for
the future. As we describe below, we plan to use those strengths to undertake
some exciting new initiatives that we believe should restore us to an annual
earnings growth rate in the 15% - 20% range by the end of next year."
Scrushy commented on particular trends affecting HEALTHSOUTH's
expectations for the remainder of 1999: "In our inpatient rehabilitation
business, we have seen an upward shift in our percentage of revenues derived
from Medicare resulting from a decrease in private pay occupancy. As the
payor mix changes in our inpatient facilities, our average pricing goes down
because Medicare only reimburses us for our costs. We have always been
committed to being the cost-effective provider of inpatient rehabilitation
services. As we have stated before, we believe that the implementation of PPS
for inpatient rehabilitation will be positive for HEALTHSOUTH by allowing us
to earn a margin over our costs for Medicare patients, and the cost
efficiencies that we have produced in our inpatient operations should be
rewarded.
"On the outpatient side, we have seen a seasonal decline in surgical case
volume, as patients and physicians defer elective procedures during the summer
vacation season. In addition, same-store volume growth in our outpatient
rehabilitation centers has been lower than we had previously expected. Our
outpatient business also continues to feel the effects of the continued
failure by major managed care payors to pay on time and in accordance with
contract terms. As we indicated in our second quarter 10-Q, we continue to
see delays in payment by many payors, and we also continue to see payors seek
to reprice our services in a manner inconsistent with our contracts. Further,
some payors have recently announced their plans to reduce their expenditures
for outpatient services by 3% to 5% over the next 18 months. We discuss below
some of the steps we are taking to address these issues.
"We have incurred significant costs, as well as diversion of management
attention and resources, during the third quarter in connection with our
exploration of the proposed spin-off of our inpatient division. We expect to
see additional labor costs in the fourth quarter as we go through our normal
merit increase process. Last year, we elected to forgo merit increases for
all employees. In today's job market, however, we cannot maintain the
outstanding team that we have assembled without providing merit increases to
those employees who have earned them. We also expect to see additional costs
going forward in connection with the capital programs that we describe below."
Scrushy continued, "Our current expectations on operating margins and
future growth are based on our preliminary results of operations and our
current analysis of trends affecting our business, as well as the expected
impact of the new plans we are announcing today. Obviously, factors such as
further increases in our Medicare mix, negative developments in managed care
pricing or other adverse changes in regulation and reimbursement could cause
further changes in our expectations. If that happens, we will continue to use
our resources to respond to those changes and build the best value that we can
for our stockholders."
Management Initiatives
HEALTHSOUTH also announced a series of strategic initiatives by management
designed to address and respond to the new challenges facing the company in
the current environment:
* Outpatient Management Structure: Effective immediately, HEALTHSOUTH is
eliminating separate divisional management for its outpatient lines of
business. P. Daryl Brown, currently division president for HEALTHSOUTH's
outpatient rehabilitation division, will assume operating responsibility for
all outpatient services in the eastern United States, and Patrick A. Foster,
currently division president for HEALTHSOUTH's surgery center division, will
assume operating responsibility for all outpatient services in the western
United States. All outpatient services will be organized under local market
managers and regional market leaders, who will be responsible for outpatient
rehabilitation, outpatient surgery, diagnostic services and occupational
health services in their respective markets. Under this structure, local
market managers will also be primarily responsible for local managed care
contracting and contracting with local self-insured employers. The company
will continue to deal with national contracting through its corporate office.
In connection with implementing these changes, the company expects to incur
restructuring charges aggregating approximately $250 million - $300 million by
the end of 1999.
"We believe that this new management structure will enable us to take
integration of all our outpatient services in each market to the next level,"
said Scrushy. "By focusing our management teams on all services in an area,
and by empowering our local and regional managers to carry out more decisions
on their own, we will be able to more effectively allocate our resources and
leverage our market strength in each line of business. This will also help us
accelerate the implementation of our Integrated Service Model and the
development of our Integrated Medical Plazas in major markets."
* Capital Expenditure Plan: HEALTHSOUTH is undertaking a plan to invest
up to $1 billion in capital expenditures and related items over the next three
to five years while remaining committed to its existing financial policies.
These new expenditures will be in addition to customary corporate development
activity. The plan will encompass technology upgrades for the company's
outpatient surgery centers and diagnostic centers, expenditures for facility
upgrades, maintenance and expansion in all lines of business, improvements to
the company's management information systems and billing and collection
systems, and expenditures for other capital items. In addition, the plan
calls for increasing the rate of development of new surgery centers, ramping
up the development of Integrated Medical Plazas, exploring additional
acquisition opportunities in outpatient services, and expanding the company's
Internet presence through alliances with leading healthcare Internet services.
Included in the plan is the roll-out in the outpatient division of the
company's HCAP (HEALTHSOUTH Clinical Automation Program) system, a paperless
system that will allow for real-time paperless patient charting and the
integration of clinical documentation, outcomes data collection and charge
processing through a central server.
Scrushy stated, "In today's environment, we owe it to our stockholders,
our patients, our employees and the physicians and patients that we serve to
utilize our brand name recognition, our excellent cash flow and our balance
sheet strength to build value for the future. We are committed to improving
our facilities and the resources and technology available to our clinicians in
order to provide still better service to patients and payors. We are
committed to continuing with an acquisition and development program that will
allow us to further penetrate key markets and capitalize on our management
strengths and our reputation for quality and cost-effectiveness. We are
committed to leveraging the strength of our brand name through alliances with
the most innovative healthcare Internet companies, in order to make it even
easier for patients and physicians to get the services they need from
HEALTHSOUTH. While the magnitude of this effort may negatively affect our
short-term earnings and market performance, we owe it to all the
constituencies that we serve to make the right decisions for the future."
* Managed Care Strategies: HEALTHSOUTH announced a series of new
initiatives to respond to issues in managed care reimbursement. The company
is in the process of completing a project with a major software solutions
vendor that is designed to integrate the company's managed care contract
database with its patient accounting systems in order to more accurately
capture appropriate charges without repeated manual review of contracts. The
company is also seeking appropriate increases in managed care rates, and
announced its intention to terminate certain national and regional contracts
providing inadequate reimbursement. The company further indicated that it
would increase its focus on local managed care contracting and administration,
in order to better capitalize on its strengths in particular local markets.
"Like all providers, we face the increasing burdens of paperwork and
administration arbitrarily imposed by many payors," said Scrushy. "Further,
while we have been very successful in obtaining national and regional
contracts with major payors, we have found that those payors' systems
frequently are not up to the task of effectively managing reimbursement on a
national or regional level. In the recent past, we have seen many payors
merge, and we have seen many payors offer a variety of new product lines.
Frequently, those payors have tried to force us to take the lowest pricing we
have agreed to in any contract, even under contracts with different terms. In
addition, while our national contracting strategy has been very effective in
enabling us to expand our network to all 50 states and develop the leading
brand identity in healthcare, we have now determined that national and
regional pricing is holding us back from realizing the full benefit of our
market penetration in key local markets."
Scrushy continued, "In light of these factors, we will be redirecting our
focus to local market-based managed care contracting. We believe that this
will enable us to utilize the full strength of our Integrated Service Model in
markets where we have the best penetration, while simultaneously reducing the
administrative burden associated with claims processing issues that arise
under national contracts. In that connection, we expect to terminate a number
of existing national and regional contracts with unfavorable pricing and to
seek to renegotiate new contracts in local markets. While we expect that this
will have a negative impact on patient volumes and revenues in the near term,
we believe that it is the long-term strategy that represents the next stage in
the evolution of managed care relationships."
Commenting on these new initiatives as a whole, Scrushy added, "We have
always worked to be at the forefront in the delivery of state-of-the-art,
cost-effective healthcare services and in responding to the changing economics
of the healthcare marketplace. These new steps that we announce today
continue that effort. We believe that the initiatives that we are adopting
represent the best long-term strategies for HEALTHSOUTH, its stockholders, and
the physicians, patients and payors that we serve, and we are committed to
taking these steps even though they may have a negative impact on short-term
earnings performance. HEALTHSOUTH is in this for the long haul, and we plan
to use all of our resources to build value for the future."
Scrushy continued, "As we have stated, now that we are out of the quiet
period that followed our spin-off announcement, we will resume making
purchases under the share repurchase program we adopted earlier this year, and
we also believe that much of our leadership team will be actively buying
HEALTHSOUTH stock while we proceed with our repurchase plan."
Scrushy went on to say, "Even with the capital expenditures we have
described and our share repurchase program, HEALTHSOUTH remains committed to
its financial policies and the integrity of its balance sheet. We plan to
continue managing our business in a way that preserves the financial strength
that we have built, and to build on that strength as we move forward into the
year 2000."
HEALTHSOUTH is the nation's largest provider of outpatient surgery and
rehabilitative healthcare services, with nearly 2,000 locations in all
50 states, the United Kingdom, Australia and Puerto Rico.
Statements contained in this press release which are not historical facts
are forward-looking statements. Without limiting the generality of the
preceding statement, all statements in this press release concerning or
relating to estimated and projected earnings, margins, costs, expenditures,
cash flows, growth rates and financial results are forward-looking statements.
In addition, HEALTHSOUTH, through its senior management, may from time to time
make forward-looking public statements concerning the matters described
herein. Such forward-looking statements are necessarily estimates reflecting
the best judgment of HEALTHSOUTH's senior management based upon current
information, involve a number of risks and uncertainties and are made pursuant
to the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. HEALTHSOUTH's actual results may differ materially from the
results anticipated in these forward-looking statements as a result of a
variety of factors, including those identified in this press release and in
the public filings made by HEALTHSOUTH with the Securities and Exchange
Commission, including HEALTHSOUTH's Annual Report on Form 10-K for the year
ended December 31, 1998 and its Quarterly Reports on Form 10-Q, and forward-
looking statements contained in this press release or in other public
statements of HEALTHSOUTH or its senior management should be considered in
light of those factors. There can be no assurance that such factors or other
factors will not affect the accuracy of such forward-looking statements.
For more information, contact Richard M. Scrushy, Chairman & CEO, or
Michael D. Martin, Executive Vice President & Chief Financial Officer, at
205-967-7116.
SOURCE HEALTHSOUTH Corporation
-0- 09/09/1999
/CONTACT: Richard M. Scrushy, Chairman & CEO, or Michael D. Martin,
Executive Vice President & Chief Financial Officer, 205-967-7116, both of
HEALTHSOUTH Corporation/
/Web site: healthsouth.com /
(HRC)
CO: HEALTHSOUTH Corporation
ST: Alabama
IN: HEA CPR MLM
SU: ERP PER CON
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