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If you're a corporate executive, you can bet it's going to be a bad Monday when your company was featured on 60 Minutes the previous night. Health Management Associates (NYSE: HMA ) just joined the club of companies targeted by the long-running CBS news program. HMA got off to an unsurprisingly bad start Monday, with shares down 6% in early intraday trading.
What's all the fuss about -- and should HMA investors be running for the hills in the aftermath? Let's investigate.
Admissions and no admissions
The 60 Minutes story alleged that HMA pressured its doctors to admit more patients so that the company could make more money. The CBS news team claimed to have talked to more than 100 current and former HMA employees as part of their investigation.
Sunday night's broadcast featured interviews with a former HMA director of case management and three former emergency room physicians who had been fired by HMA. All maintained that the company pushed employees to achieve a higher admission rate regardless of whether the patients needed to be admitted to the hospital. The show also included an interview with a former HMA director of compliance who stated that his audits supported those claims.
HMA launched a pre-emptive counter-attack on Friday prior to the show's airing. The company presented data from government sources that showed that its emergency room admissions rates were consistently in line with industry norms from 2008 to 2011.
Following the broadcast, HMA stated that the 60 Minutes story "relied entirely on disgruntled former employees of the company and former contracted physicians, several of whom are seeking financial gain through active litigation with Health Management." HMA noted that the program didn't mention any instances where the company's management team overrode a physician's medical judgment.
The bigger story
There's no way to know for sure who is right at this point. The overall data doesn't appear to reflect that HMA is admitting more patients than its peers. On the other hand, the data can't really be used to refute individual allegations made by former employees.
HMA isn't the only large hospital chain to become involved in controversy. Earlier this year, HCA Holdings (NYSE: HCA ) , the nation's largest for-profit hospital system, came under scrutiny by the U.S. Justice Department for possibly performing heart procedures that were not medically necessary.
The bigger story to me relates to the incentive system that is in place with our current health care system. Hospitals are paid for the services provided. As for-profit entities, they have an incentive to provide more services to boost revenue. Medical decisions can frequently be in gray areas. It's in the economic interest of the hospitals to go with the more profitable alternative in these cases. However, that isn't always the best option financially for the ultimate payers for health care: insured Americans and taxpayers.
This situation probably won't change unless the incentives change. That's why the accountable care organization, or ACO, model looks attractive. ACOs seek to connect health care provider reimbursement with the total cost of care and quality. For example, UnitedHealth Group (NYSE: UNH ) supports an ACO program in Tennessee that includes incentives for reducing hospital admissions while improving overall care.
Run for the hills?
What should investors who own HMA stock do? CRT Capital says to sell because of the possible risks. Leerink, on the other hand, says the risk is only moderate and maintains its "outperform" rating on the stock.
Foolish investors look at the long run. The valuation and growth prospects for HMA still look attractive. Think long and hard before dumping shares solely because of the 60 Minutes story.
The latest controversy could reinforce the push for new reimbursement approaches that align health care providers' financial incentives with the greater good. Potential winners from movement toward these new models include UnitedHealth, MedAssets (Nasdaq: MDAS ) and McKesson (NYSE: MCK ) . MedAssets and McKesson both develop software that support new health care payment models.
In the meantime, the conflicts will continue. Health care costs will keep rising. And the clock will keep ticking.
Possible new payment models are only one reason that investors might want to look at UnitedHealth Group. In this brand new premium report on the managed care giant, we take the long term view, honing in on prospects for UnitedHealth in a post-Obamacare world. The report also comes with a full year of analyst updates to keep you covered as key news develops, so don't miss out -- simply click here now to claim your copy today.