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