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Columbia/HCA earnings up 15 percent but larger questions loom

July 30, 1997

NASHVILLE, Tenn. (AP) _ Columbia/HCA Healthcare Corp. said today second-quarter profits rose 15 percent, but gave Wall Street little new insight into the hospital chain’s response to a sweeping federal fraud probe.

The nation’s largest for-profit health care company earned $412 million, or 62 cents a share, compared with $364 million, or 54 cents a share, in the same quarter last year.

Revenues were $5.2 billion, up from $4.9 billion in the comparable 1996 period.

The figures matched industry analysts’ expectations and the company’s own carefully managed earnings target, due in part to the buyback of 20 million Columbia shares for $730 million through the end of June.

But investors in the beleaguered Nashville-based chain continue to wonder how the company’s new chairman and chief executive officer, Thomas Frist Jr., will respond to a federal investigation that included raids of Columbia and affiliated facilities in seven states this month.

``He’s said basically that he wants to focus on health care instead of profit. I want to know exactly what he’s going to change,″ said Sheryl Skolnick, an analyst with Robertson, Stephens & Co. in New York.

Frist planned to talk to analysts in a conference call today.

Frist already has put a stop to joint ventures with doctors and hospitals and wants to unravel those agreements already in place. And he won’t take the company to communities where it’s unwelcome, he said.

Columbia may announce further personnel changes. And Frist, who has said he will no longer add ``Columbia″ to the name of purchased hospitals, may be ready to change the company’s name altogether.

``The earnings will probably be the secondary point of the discussion unless there is a surprise of some kind,″ said Kemp Dolliver of Boston-based Cowen & Co.

Columbia shares fell 25 cents to $34.31 1/4 in morning trading on the New York Stock Exchange.

Last week, Columbia’s two top executives resigned amid the probe of Columbia’s alleged overbilling of the government’s Medicare and Medicaid health programs.

Former Chief Executive Officer Richard Scott and former President David Vandewater resigned after board members expressed dissatisfaction with their initial response to the government inquiry. Company officials felt Scott’s aggressive efforts to maximize profits and hold down costs made Columbia look like the Darth Vader of the health care industry.

A federal raid on Columbia facilities in El Paso, Texas, in March had little apparent impact on earnings.

Same-site revenues _ from hospitals and other facilities owned by Columbia for more than a year _ increased 6 percent in the second quarter, based upon adjusted admissions growth of 5 percent and inpatient admissions growth of 3 percent.

Surgery cases at the company’s hospitals and ambulatory surgery centers increased 6 percent on a same-facility basis.

For the first six months of the year, revenues were $10.5 billion, up from $9.9 billion in 1996. Earnings-per-share totaled $1.32, up 15 percent from $1.15 last year.

A possible merger with Tenet Healthcare Corp., the nation’s second-largest for-profit hospital chain behind Columbia, is off for now.

But several deals are still going through, said Columbia spokeswoman Eve Hutcherson. That includes a $1.1 billion acquisition of Value Health, a benefits management company in Avon, Conn.

Frist also is taking a close look at Columbia’s 550 home health care operations, several of which are the focus of the federal investigation of Medicare and Medicaid fraud allegations.

Frist said he will he do everything he can to cooperate with the government’s probe and has hired an outside firm to look at whether any billing fraud occurred.

Despite ongoing changes, the new chief might not be able to put the company back on track, said Bernard Salick, chairman and CEO of Bentley Health Care of Los Angeles.

``I fear it’s just totally out of hand and there’s no way to control it,″ Salick said.

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