Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Triad Tries for More

Taking care of people for profit is a lousy business. There, I said it. You have to deal with expensive staff, customers who can't pay, customers who will sue you for millions if anything goes wrong, suppliers who want ever-higher prices, and payers who want to spend as little on health care as possible. Great business, huh? Couple that with the industry's long-term inability to earn back its cost of capital, and it's hard for me to really care that P/Es across the industry are at or near multiyear low points.

Triad Hospitals (NYSE: TRI  ) is a good case in point for some of the difficulties right now. Total reported revenue rose about 18% this quarter on a 1.5% increase in adjusted admissions. But adjusted EBITDA was up less than 5%, and income from continuing operations was up less than 10%, if you exclude some one-time refinancing costs from the year-ago quarter.

Bad debt continues to be a challenge as well. Provisioning for doubtful accounts was up 42% from last year and made up more than 9% of revenue. Adjust out the impact of the company's self-pay discount (a mechanism designed to make costs more manageable for uninsured patients), and it exceeded 12% of revenue.

Triad, and other operators like HMA (NYSE: HMA  ) , HCA (NYSE: HCA  ) , and Tenet (NYSE: THC  ) , are not only bedeviled by both patients who can't pay and malpractice lawyers, but also sometimes by the people who ultimately sign the checks -- managed-care companies like UnitedHealth (NYSE: UNH  ) and the government. The health-plan operators want costs as low as possible, and so does the government -- even though I don't expect medical cost increases to abate in the lifetime of my pet rock. Although the government recently revised some reimbursement guidelines that would have threatened some lucrative subspecialties, the overall environment remains difficult.

Simple ratio analysis doesn't get you too far in investing, but it does illustrate a point with hospital stocks like Triad. When medical-device, pharmaceutical, and health-insurance companies are able to post solid margins and excellent returns on capital, you know where the power lies in the system. And while some may argue that that balance of power is due for a change, I wouldn't bet on the hospitals winning many battles against that array of industries.

For more Foolish takes on health care:

UnitedHealth is aMotley Fool Stock AdvisorandMotley Fool Inside Valuerecommendation. You can try out any of our newsletter services free for 30 days.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 515210, ~/Articles/ArticleHandler.aspx, 10/22/2016 12:05:55 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 14 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
TRI $39.73 Up +0.15 +0.38%
Thomson Reuters CAPS Rating: **
HMA.DL $0.00 Down +0.00 +0.00%
Health Management… CAPS Rating: No stars
THC $23.53 Up +0.01 +0.04%
Tenet Healthcare CAPS Rating: **
UNH $145.37 Up +0.30 +0.21%
UnitedHealth Group CAPS Rating: ****